Although a stock split in itself is not a taxable event, you may be on the hook for taxes if you cash in on your extra shares.
Tesla (TSLA -2.03%) completed its second stock split after close of trading on Aug. 24. If you had one share of Tesla in your account before the stock split, you now have three whole shares of the electric vehicle maker sitting in your account.
Although it may be tempting to sell your extra shares, there's something you should consider before making your move: taxes. Selling your Tesla shares for a profit could trigger a taxable event.
Image source: Getty Images.
The story behind stock splits
Stock splits have become very popular in 2022, but they don't always lead to profits.
A stock split multiplies the number of shares a company has outstanding while keeping the current value of the shares the same. Although a company's stock price has the potential to jump after a stock split, that isn't always guaranteed.
Let's look at the mechanics of a stock split. Tesla's stock was trading around $900 before the stock split. Since Tesla pursued a 3-for-1 stock split, the stock price dropped from approximately $900 to $300 per share. If you had 1 share of Tesla in your account, you would have 3 shares worth a total of $900 after the stock split.
Although you have more shares in your account after a stock split, you won't have to worry about taxes -- unless you sell your additional shares for a profit.
What happens if you sell your extra shares of Tesla?
Let's say you have 3 shares of Tesla in your account before the stock split. After a 3-for-1 split, you'll wake up to nine shares of the company stock.
Stock splits can be an exciting time for investors as you watch your shares multiply overnight. However, if you sell your shares for more than you paid for them and you hold them in a regular taxable account, you'll have to consider capital gains taxes.
Capital gains taxes can be divided into two flavors: short-term or long-term. If you get caught in the short-term capital gains bucket, you'll have to pay the same taxes you pay on income earned from working a job. The ordinary income tax rates could be as high as 37%. You'll only have to worry about these rates if you held your stocks for a year or less before selling them.
Get a better deal on your Tesla tax bill
The best tax rates are reserved for investors who hold on to their stocks for over a year. If you bought your shares of Tesla in 2020 and sold a portion of your shares after Tesla's second stock split, you'll qualify for the long-term capital gains rates.
Being a patient investor will grant you access to the 0%, 15%, and 20% long-term capital gains rates. If you're thinking about selling shares, take a look at these capital gains tax rates below.
2022 Long-term Capital Gains Tax Brackets
For single filers with taxable income of... | For married joint filers with taxable income of... | For heads of households with taxable income of... | ...this is the long-term capital gains rate |
|---|
$0 to $41,675 | $0 to $83,350 | $0 to $55,800 | 0% |
$41,676 to $459,750 | $83,351 to $517,200 | $55,801 to $488,500 | 15% |
Over $459,750 | Over $517,200 | Over $488,500 | 20% |
Table source: Author. Data Source: IRS.
Don't push taxes to the curb
After a 3-for-1 stock split, your account can quickly go from five shares to 15 shares. If you sell your extra shares for a profit, get ready to report your gains during tax time.
However, you can avoid taxes this year by holding on to your extra shares of Tesla. If the company continues to do well and the stock goes up, you'll position yourself to enjoy greater profits later.
Charlene Rhinehart, CPA has positions in Tesla. The Motley Fool has positions in and recommends Tesla. The Motley Fool has a disclosure policy.
FAQs
Tesla Stock Declines In 2024
With 2023 in the rearview mirror, Wall Street consensus has 2024 Tesla earnings firmly below last year's level. That signals another year of earnings declines for this growth stock. Analysts currently expect Tesla earnings per share of just $2.41 in 2024, according to FactSet.
Is a stock split a taxable event? ›
Stock splits don't create a taxable event; you merely receive more stock evidencing the same ownership interest in the corporation that issued the stock. You don't report income until you sell the stock. Your overall basis doesn't change as a result of a stock split, but your per share basis changes.
Which stock will split in 2024? ›
The most high-profile of those companies include retail giant Walmart and chipmaker Nvidia, as Fast Company previously reported. And other companies in 2024 have split or announced they will split their stock. As CNBC notes, some of those companies include Williams-Sonoma, Broadcom, and Sony Group.
Is Tesla stock a buy? ›
On Tuesday evening after the market closed, Stifel analyst Stephen Gengaro launched coverage of Tesla stock with a Buy rating and a $265 price target. A new bull typically boosts a stock. might also be contributing to Tesla's gain.
Will Tesla reach $1000 again? ›
It's unlikely Tesla's returns going forward will come anywhere near resembling the last five years. So, investors shouldn't expect a $1,000 price per share by the end of the decade.
How much will Tesla stock be worth in 5 years? ›
When CNBC asked what Tesla would be worth in five years, Wood confidently said $2,000 per share. The $2,000 per share figure is not new, either. In April 2023, Ark Invest published its valuation model for Tesla with the same price target and the expectation of reaching it by 2027.
Is it better to sell stock before or after split? ›
That said, many stocks have shown strong performance after a split. In other words, selling your shares of a stock prior to a split isn't always the best decision – unless, of course, you're not well-positioned to continue holding the stock.
How do you calculate capital gains after a stock split? ›
Capital Gains and Losses - Stock Split. How can we help? A stock split will affect your number of shares and your basis in each share. To determine your new basis per share, you would divide your total adjusted basis of the old stock by the number of shares you hold after the split.
Do you have to report sold stock on taxes? ›
If you sell stocks for a profit, your earnings are known as capital gains and are subject to capital gains tax. Generally, any profit you make on the sale of an asset is taxable at either 0%, 15% or 20% if you held the shares for more than a year, or at your ordinary tax rate if you held the shares for a year or less.
What are the best stocks to invest in 2024? ›
Best S&P 500 stocks as of June 2024
| Company and ticker symbol | Performance in 2024 |
|---|
| Constellation Energy (CEG) | 86.0% |
| Deckers Outdoor (DECK) | 63.7% |
| General Electric (GE) | 61.9% |
| First Solar (FSLR) | 57.7% |
6 more rowsKey Takeaways
In a stock split, a company divides its existing stock into multiple shares to boost liquidity. Companies may also do stock splits to make share prices more attractive. For shareholders, the total dollar value of their investment remains the same because the split doesn't add real value.
What is a fair price to buy Tesla stock? ›
As of 2024-06-26, the Fair Value of Tesla Inc (TSLA) is 107.02 USD. This value is based on the Peter Lynch's Fair Value formula. With the current market price of 187.35 USD, the upside of Tesla Inc is -42.9%.
How high will Tesla stock go? ›
TSLA Stock 12 Month Forecast
Based on 33 Wall Street analysts offering 12 month price targets for Tesla in the last 3 months. The average price target is $174.60 with a high forecast of $310.00 and a low forecast of $22.86. The average price target represents a -4.37% change from the last price of $182.58.
What was Tesla highest stock price? ›
The all-time high Tesla stock closing price was 409.97 on November 04, 2021. The Tesla 52-week high stock price is 299.29, which is 52.4% above the current share price. The Tesla 52-week low stock price is 138.80, which is 29.3% below the current share price.
What will Tesla stock be worth in 2025? ›
Tesla Stock Price Predictions for 2025
Tesla's meteoric rise has sparked heated debate about how high the company's shares can climb in the coming years. In 2025, #TSLA could range between $22 and $389 per share based on the most bullish and bearish projections.
Is Tesla stock expected to rise? ›
Based on 33 Wall Street analysts offering 12 month price targets for Tesla in the last 3 months. The average price target is $174.60 with a high forecast of $310.00 and a low forecast of $22.86. The average price target represents a -4.37% change from the last price of $182.58.
Will stocks go back up in 2024? ›
The S&P 500 generated an impressive 26.29% total return in 2023, rebounding from an 18.11% setback in 2022. Heading into 2024, investors are optimistic the same macroeconomic tailwinds that fueled the stock market's 2023 rally will propel the S&P 500 to new all-time highs in 2024.
What will Tesla stock market cap be in 2030? ›
Looking at potential scenarios. For Tesla's market cap to expand just less than twofold over the next six or so years, it would need to climb at an annualized pace of 11.5%. To be clear, it's not a stretch to believe the business can reach a $1 trillion market cap by 2030.
