A. Knowing when to sell a winning stock is probably the toughest decision an investor needs to make. If you sell too early, you might miss more gains; but if you hold it more, the price might start dropping.
In addition, there is a complication of paying ordinary income tax on the short-term capital gain versus paying the lower long-term capital gain tax rate if you hold the winning stock for more than a year.
Below we will introduce a break-even sales price tool to help you figure out a price point that there will be no difference between if you sell the winning stock (so you have to pay the higher short term income tax rate) and if you hold it till one year (therefore paying a lower long term capital gain tax rate).
We will call this break-even sales price point.
The math formula is:
Break-even Sales Price = (After-tax proceeds from the sale at your ordinary income tax rate - long-term capital gain tax rate * cost basis) / (1-long-term capital gain tax rate)