How will the Amazon stock split affect my tax returns? | Personal finance

(Charlene Rhinehart, CPA)

e-commerce giant Amazon (NASDAQ: AMZN) finally pulled the trigger on its plan to split 20-for-1 shares this year. This means that you will receive 19 additional shares for each Amazon share in your portfolio. If you currently own two Amazon shares, you might jump for joy when you notice 40 shares in your account after the big day.

Before you get too excited, we’ll explain how a stock split works and how it might affect your taxes.

Image source: Getty Images.

Is a stock split good?

While it may seem like you’ve hit the jackpot when you hear about a stock split, it’s not as glamorous as it sounds. You will receive additional shares of Amazon in your account, but the overall value of your shares will not change.

Let’s say you owned an Amazon stock valued at $3,000 before the split. After a 20-to-1 stock split, you now own 20 shares worth $150 per share. The total value of all your shares will still be $3,000.

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Stock splits may not impact the value of your shares, but they are a great way to get more people to invest. Instead of paying $3,000 for a share of Amazon, investors will have the option of owning a full share for $150. If the four-digit stock price has kept you from owning a full stake in Amazon in the past, you’ll have a shot at joining the club after the stock split.

What you need to know about taxes

Relax. I’m not about to throw thousands of tax considerations and forms at you. Stock splits are tax efficient. Because you don’t make money from a stock split per se, you don’t have to pay any money to the IRS.

Let’s go through all of the events so you can understand why stock splits aren’t taxable.

  • March 9, 2022: Amazon filed a Form 8-K announcing its intention to conduct a 20-to-1 stock split.
  • May 25, 2022: Shareholders vote on the stock split at the 2022 annual meeting of shareholders.
  • May 27, 2022: Shareholders must be registered on that date to participate in the stock split.
  • June 3, 2022: Amazon will offer investors 19 additional shares for each share held.
  • June 6, 2022: This is the day when you can start buying whole shares of Amazon at a discount.

As you can see from the timeline above, you will not be entitled to any additional money due to the stock split. Therefore, you do not have to declare it on your taxes. There is nothing mentioned above that would sound the alarm and make the stock split a taxable event for shareholders.

Selling your shares may have a cost

A stock split by itself will not require you to report income on your tax return. However, selling Amazon stock before or after the split is another story.

Let’s say you buy a share of amazon stock before the stock split. Your single stock turns into 19 more shares due to the 20-to-1 stock split. If the stock goes up and you decide to pull the trigger and sell half of your stock immediately after the split, you will be short-term support. capital gains taxes. These tax rates can reach 37% if you earn a lot of money.

If you hold your shares for more than a year before selling, you will have a chance to unlock long-term capital gains rate. Investors benefit from capital gains rates because they can get a deal on their tax bill. Below are the 2022 long-term capital gains rates in case you’re thinking of hitting the sell button.

For single filers with taxable income of…

For married co-filers whose taxable income is…

For heads of families whose taxable income is…

…this is the long-term rate of surplus value

$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%

Your next move

If you already own shares of Amazon, you’ll wake up to additional shares in your account in June if the stock split is completed. The best part is that you don’t have to do any legwork to access the shares. Your brokerage will take care of the logistics while you celebrate what awaits this tech giant. In addition to this, you will not receive a tax bill from the IRS due to the stock split. If you believe in Amazon’s future potentialit will not be a bad idea to keep all your shares and encourage the growth of the company.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Charlene Rhinehart, CPA owns Amazon. The Motley Fool owns and recommends Amazon. The Motley Fool has a disclosure policy.

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