Whenever you liquidate a small portfolio or convert the stock to cash, it has financial consequences. For example, you may be taxed on capital gains or lose the portfolio's future appreciation. A liquidation specialist at a brokerage firm can help you anticipate the tax consequences of the portfolio liquidation and advise you about an approach that will maximize the return on your investment.
Evaluate Your Stock Portfolio
When you look at your stock portfolio, make note of the number of shares you own of each company's stock and their current value. If you own a large number of shares or if the share value has appreciated significantly, you should work with a stockbroker to liquidate your portfolio for a number of reasons. For example, to sell your shares at the best market price, you should avoid moving a large number of shares into the market at one time, which will cause the stock price to decline. In addition, if your shares don't trade frequently or the shares were issued by a private company, get advice about liquidating your portfolio from one or more brokers.
Tax Implications of Liquidation
Before you liquidate your stock, consider the tax implications of doing so. For example, if you sell at a gain a share that has been in your portfolio for more than a year, the profit is subject to a capital-gains tax. If the sale occurs less than one year after the purchase date, your profit is subject to the ordinary income tax rate, which may be greater than the capital gains tax rate. If you sell the share at a loss, that loss can offset any capital gain you earned from the sale of another investment. Consequently, when you sell, you might pair shares that have risen in value with shares that have decreased in value.
Determine Market Price and Sales Volume
You liquidate stock at its current market value. If the shares are publicly traded, you can find their current market price on the appropriate exchange. Create the sell order by stating the number of shares you want to sell. The amount of cash you receive will equal the number of shares multiplied by their current market price minus transaction and broker fees.
Execute the Sale
Your stockbroker can execute the sale orders or you can do so using an online brokerage account. If your broker sells each individual position, you must tell her what number of shares of a particular stock you want to liquidate. If you enter a sell order using your brokerage account, you enter the number of shares for each stock you want to liquidate. In either case, you can specify the lowest acceptable sales price per share using special order types.
Confirm the Buy Orders
Your broker will provide a confirmation for the sale of your shares. Review the confirmation and affirm the number of shares sold and the sale price of each, as well as the costs incurred to sell the securities. Each financial service firm is required to provide the seller this information.
- Nasdaq: How to Liquidate Your Portfolio for Retirement
- BuyandHold: Educate Yourself
- FINRA: Private Placements — Evaluate the Risks Before Placing Them in Your Portfolio
- Internal Revenue Service: Topic 409 -- Capital Gains and Losses
- U.S. Securities and Exchange Commission: Market Order
- U.S. Securities and Exchange Commission: Understanding the Different Ways to Buy and Sell Stock
- U.S. Securities and Exchange Commission: Trade Execution -- What Every Investor Should Know
- Interactive Brokers: Can I Set a Maximum Dollar Exposure for My Account?
- U.S. Securities and Exchange Commission: 17 CFR Parts 239, 240 and 274