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I have some long term stock holdings (ranging 2-4 years old). I would like to buys some more of those stocks with the intention of selling them short term (days to weeks).

Right now, the tax strategy on my account is set to FIFO (first in, first out) by default. When I sell those short-term stocks, does it make sense to switch the tax strategy to LIFO (last in, first out). Those long term holdings have quite a bit capital gains, and I don't see a need to pay those capital gains now.

Related question: If I intend to do a lot more short-term buying/selling on top of my long-term holdings, does it make sense to set my account to LIFO by default?


An example, simply for illustration:

Oct 2011 Bought 50 AAPL @ $400.00  
Oct 2013 Bought 20 AAPL @ $490.00  
Future   Sell   20 AAPL @ ???      <-- Best tax strategy?  
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    Have you consider what the tax rate is on each set of gains? The short-term capital gains tax rate may be much higher than the long-term capital gains rate. – JB King Oct 13 '13 at 0:09
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Your question is missing too much to be answered directly. Instead - here are some points to consider.

  1. Short term gains taxed at your marginal rates, whereas long term gains have preferable capital gains rates (up to 20% tax rate, instead of your marginal rate). So if you're selling at gain, you might want to consider to sell FIFO and pay lower capital gains tax rate instead of the short term marginal rate.

  2. If you're selling at loss and have other short term gains, you would probably be better selling LIFO, so that the loss could offset other short term gains that you might have.

  3. If you're selling at loss and don't have short term gains to offset, you can still offset your long term gains with short term losses, but the tax benefit will be lower. In this case - FIFO might be a better choice again.

  4. If you're selling at loss, beware of the wash sale rules, as you might not be able to deduct the loss if you buy/sell within too short a window.

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