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 when you liquidate stock and advise you about an approach that will maximize the return on your investment.
Consider also: Advantages and Disadvantages of Investing in Stocks
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.
Consider also: What Is Stock Performance?
Consider the Tax Consequences
Before you liquidate 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 or check the best stock websites that provide updated information. 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.
Proceed to Liquidate Stock
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.
Consider also: Can You Have Federal Tax Withheld When Selling Stock?
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.