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Selling stocks worth millions of dollars?

Selling stocks worth millions of dollars?

Postby ruodrik » Mon Nov 19, 2012 10:40 am

Let's say someone purchased a couple hundred thousand shares of a super low stock. The stock finally takes off and is worth say $10.00 a share. The almost worthless portfolio's stock is now valued at close to $3 million dollars. If this were on an account like E-trade or Sharebuilder, does the owner selling the shares get taxed by anybody? Is any money lost any where else once someone goes from crappy portfolio to millions of dollars? I am really just wondering how much of the profits of a rising stock minus fees and taxes is kept by the trader?
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Selling stocks worth millions of dollars?

Postby jamon » Mon Nov 19, 2012 10:50 am

When you sell an asset, the profit made (sale price) is called "capital gains". In the US there are different rates depending on how long you owned the stock: less than a year and it's "ordinary income", that is your normal tax rate (which would be 35% on that $3m). If held more than a year, the rate is only 15% (or 5% for lower income tax brackets).

So of the $3 mil you would pay $450,000 to $1,050,000 in taxes, since almost all of it was gains.

(And you don't pay taxes until the stock is sold, so you could potentially just hold it a long time to avoid paying. This is one of the big reasons there is a special capital gains tax rate, to encourage people to sell and pay something instead of holding and paying nothing.)

But I should also point out that an "almost worthless" stock almost never comes back that big. It's really like lottery ticket odds. Stocks are usually issued in the $10-$40 per share range, so if something's selling for under $1 that means things have gone really wrong.
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Selling stocks worth millions of dollars?

Postby jamon » Mon Nov 19, 2012 10:52 am

Theoretically, this works but in reality, it won't. The important thing about trading super low stock is, first, look at the trading volume. If the trading volume is low, there is no way you could make the money. Let me give you an example. Let' say a super low stock worth, $0.0004 per share and you've brough $400 for a million share. Having done that, next, you spend $10 to purchase 1 share in the market. Now, the math works like this. The last trade price (current price) is $10 per share, you possess 1 million shares. Theoretically, you not have stocks that worth $10M. BUT there is no buyer. Your stock still worth zero. Get it?
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Selling stocks worth millions of dollars?

Postby percy » Mon Nov 19, 2012 11:19 am

" worth say $10.00 a share" You don't understand stocks or the market. Stocks are only "worth" what someone will pay for them. They have very little intrinsic value. In order for your stock to be "worth" 3 million you would have to have someone willing to pay that much for your stock. This is not very likely.
The rest of your question doesn't make sense. Perhaps you could clarify.
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Selling stocks worth millions of dollars?

Postby anakausuen91 » Mon Nov 19, 2012 11:46 am

That would be called a capital gain and you don't pay capital gains taxes on the increase until you sell the stock. By the way I said, "it WOULD be called a capital gain" because penny stocks don't and won't go up that much in value.
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Selling stocks worth millions of dollars?

Postby rald25 » Mon Nov 19, 2012 11:50 am

You'd have a better shot at the lottery..... having said that.... when the shares are sold you would owe the government taxes on the profit. How much you pay would depend on your tax bracket. The broker would get their normal commission which may only be $10 (or less).
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Selling stocks worth millions of dollars?

Postby jayna57 » Mon Nov 19, 2012 11:55 am

It won't work little man. Super low stock prices stay low and and rise in the price value is taxed and is called capital gains- either short or long-term.
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