I have RSU's vesting from my company periodically in USA. I would like to sell them to diversify in an index fund. How do I choose between LIFO and FIFO for the maximum resultant cash?
First in first out. These were vested over a year ago, so they will incur the lower long term capital gain tax. They were were also at a lower price, so the capital gain is larger.
Last in first out. These were vested recently, so will incur the higher short term capital gain tax. They are much closer to the current price, so the capital gain is smaller. Some of them might actually be slightly lower than the current price (loss).
What's the difference?
Let's say I sell the recent shares, where the capital gain is close to zero, so therefore the tax is close to zero. That leaves me the old shares which were vested when the price was low. So whenever I sell those old shares in the future, I will have a high capital gain, which will have high tax.
There's also a similar scenario if I sell the old shares first. I'd have lower long term capital gain, but it leaves the new shares stewing in my account. The stock has been climbing consistently, widening the gap in price. In the future, selling those new shares will have a large capital gain.
It appears to me the tradeoff is between paying a lot of tax now or later. In another 10 years, does it really matter whether I paid taxes earlier or later?