California Capital Gains Tax - An Overview with Stocks Sales!

August 5, 2004
Tomas Harnin

Thorne had been offered a job by a public company in California that's listed in a foreign country. It is a start-up so cash was limited etc. Consequently, the offer he received was 50% cash/50% freely-trading stock (not options). The company was in the process of a capital raising (not an IPO) of approx $3 million. Stock would be issued at a strike price of US$0.15 whereupon it was anticipated that they would reach $0.30-0.50 within the first couple of months; especially after it dual-lists here in the US. The improved price will hopefully allow me to be able to raise my combined salary by at least 50%. I will need to start selling that stock within 2 months to start supplementing my income. What he was worried about was not job but the California Capital gains tax.

He realized that the potential income from stock was riskier than cash payments received as salary. He held a dual citizenship but was a permanent resident of California State. His concerns revolved around the capital gains taxes in California arising out of sales of stocks in the coming months. He also looked around for ways to minimize his capital gains taxes as the company as located overseas. He also knew nothing about the capital gains tax on stocks held for more than twelve months or less than that.

When he looked for professional help someone suggested him that if the stocks appreciated and he sold them then he would face tax liability. If stocks were held for less than 12 months, then gains on it would be treated at the same tax rate as on his regular income. In the event that he holds the stock for more than 12 months, gains on them would be taxed as long-term capital gains at rates which are lower than those for ordinary income.

Once the capital gains taxes are paid, there is no remaining tax liability on the proceeds of his sales.