It is now year 6 and the stock is trading at $70. the customer wishes to sell 1,000 shares. to minimize tax liability, the customer should use the Specific Identification tax valuation method for the shares that are sold.
Clients who have bought stocks over the years and sold part of their positions may choose to use a "specific identification" to identify the specific stocks sold. In this case, the customer reduces the tax burden by choosing the best cost burden. These are his 500 shares that he bought for $69 in his fourth year. In the fifth year, he bought his 200 shares for $68. After 1,000 shares sold for $70, 300 of the 400 shares were bought for $66 in the second year. These are the highest percentage of cost, which reduces capital gains.
If a customer does not use a specific identifier, the IRS will require her FIFO accounting of shares sold. Average tax liability costing is only available for mutual fund stocks. Not individual stocks.
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