Cashing In Before The Election

After seeing the details of Biden’s big tax increase proposal and reading that there is a legitimate chance that Democrats will win the White House and both houses of Congress this November, I figured it would be a good time to accelerate some MegaCorp stock option sales that I could otherwise stretch out to July 2022.

I made my big stock move of the decade back on St. Patrick’s Day during the pandemic meltdown, but I am now doubling-down with more sales since MegaCorp is having a great run and taxes are likely going up.

Over the last 8 years I’ve sold over 115K MegaCorp stock options. It’s been like a part-time job selling them all. I have two more years on the options I have left, but I don’t want to leave them until the end. They are currently trading at $64, but were as low as $36 just 18 months ago. My average sale price has been close to $60.

I get taxed as ordinary income on the gross value of every stock option exercise which has created some huge tax bills for us. If the highest tax rate goes up in 2021, we would be hit hard. Now that the stock market has largely recovered, I’d rather sell now and live off the extra cash in the bank. I see more downside risk than upside opportunity in the market over the next couple years.

Ironically, as Biden talks about the rich needing to pay more, we’ll quickly drop our income to near $0 in 2021. We’ve paid lower taxes and seen the S&P 500 grow +52% behind the multi year‘Trump Bump’ and will be happy to sit back and see what opportunities come our way next.

Anyone else making any moves in advance of potential tax increases?

4 thoughts on “Cashing In Before The Election

  1. I made most of those same option moves prior to the 2016 election and pre-retiring in 2017. You are very likely correct to make those moves (just in case) before this election cycle. This election will largely be a big government/higher tax decision verses smaller government/low tax decision. It’s a toss up at this point (according to the polls, if you believe them), and the recent market bounce gives you a good opportunity for such moves. It’s the safe move, so don’t look back. You will sleep better having it done and will be well positioned either way the election goes.

    Liked by 1 person

    1. As long as the market is good, I’m going to get my transactions done. Then I can be a ‘poor’ man with little income next year. 😉

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  2. We ex-public school math teachers live far far from the world of stock options, nevertheless I agree with Mr. FS’ choice to exercise — Volitility is still the story of the day. I’m also generally supportive of progressive tax structures and await the future.

    Liked by 1 person

    1. I hope the legislature stays split between the parties. Gridlock keeps them both from getting any wild ideas!

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