Tax Law (Questions About Taxes)/inversion induced tax
I am hit with huge inversion tax this year,
having Medtronic stock for two decades, relying on its dividend as a retired, and was going to pass it to my kids.
My adjusted basis is fractional at best in view of a number of splits, and I don't have any other stocks (to offset this
gain). I even unable to sell this stock over the years to minimize impact of enormous one-time tax hit. Normally a low income, with this tax I am in high income bracket plus a subject to NY tax.
I simply received 1 share of new MDT (now Irish)for each 1 share of old MDT, no cash.
Is there anything I could do in this situation to minimise?
Thank you very much for your opinion!
Inversion tax unfortunately cannot be avoided and indeed is unfair since the taxpayer is not in control of timing when this tax hits him.
However, the tax consequences may be not as bad as you think they might be. I wish vague definitions used in your email were more clearly specified. What is "low income" and what is "huge tax" is different for different people. I also do not know your filing status that affects your tax rate.
If your income before capital gains is $40K and you receive $20K in capital gains - then you will remain in the same tax bracket, i.e. your effective federal tax rate will be 10%. This capital gain will be added to stock basis and you can sell this stock 2 years later paying tax only on the depreciation that may occur during those two years. This way the cash flow will be high enough to compensate your tax expenses incurred now.
However, if the adjective "huge" means $200K - then you will be in the highest tax bracket and in addition may be a subject to 3.8% net investment tax
Please see http://www.taxesforexpats.com/articles/investments/top-10facts-about-capital-gai
I wish I could give you more optimistic outlook.