(Charlene Rhinehart, CPA)
If you notice more shares from Google parent Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) stock in your account later this year than you originally purchased, don’t worry. The internet giant just announced a 20-to-1 stock split in conjunction with its latest earnings report. This means that investors will receive 19 additional shares for each Alphabet share they hold.
The additional shares of Alphabet should arrive in your account in July if you are eligible. Shares that are currently worth about $3,000 will be valued at about $150 per share post-split. Some investors like stock splits because stocks become more accessible. But you’re probably wondering if splitting the company stock will also increase your tax bill?
Below, we’ll look at how a stock split works and what it could mean for your tax return.
People also read…
Image source: Getty Images.
How a stock split works
Google’s parent company, Alphabet, is expected to give all shareholders of record as of July 1 additional shares in their account. If you’re unfamiliar with Google’s stock classes, it can be a bit mind-boggling trying to cover everything.
The company has the following three classes of shares:
- Class A Single Voting Common Shares: These shares have been available to investors since Alphabet’s IPO in 2004. They currently trade under the ticker symbol GOOGL.
- Unlisted Class B Shares: These shares are controlled by insiders and carry 10 votes per share.
- Listed non-voting Class C shares: These shares were created in 2014 following an unconventional stock split. They are non-voting and currently trade under the symbol GOOG.
All three Alphabet stock classes will be affected equally. If the stock split goes as planned, qualifying shareholders will receive additional shares in their account around July 15. However, this will not change the total value of the stocks in your portfolio. Your current shares will simply be split into smaller shares, making the four-digit share price more accessible to a wider range of investors.
For example, let’s say you have an Alphabet stock that was worth $3,000 before the split. After a 20-to-1 stock split, you now own 20 shares worth $150 per share. The total value is still $3,000. Your original portion of the cake has just been divided into 20 different slices.
Should we be worried about taxes?
You can move around easily knowing that splitting Alphabet’s actions won’t add another item to your to-do list. Since the total value of your shares won’t change, you don’t have to rack your brains trying to figure out more tax rules. You’ll get additional shares on your account, but you won’t have to worry about doing anything on your end.
Here’s why. A stock split does not leave you with extra money in your pocket. Since your earnings will not change, the Alphabet stock split will not impact your taxable income for your US federal tax return. A stock split, by itself, is not considered a taxable event. You will simply receive more shares in your account as a gift.
Can you sell your extra shares?
Absoutely. But you need to know what you’re getting into before you sell your extra shares after a stock split. Any time you sell shares for profit, you can trigger capital gains taxes. You will either be taxed at short-term or long-term capital gains tax rates. It all depends on how long you have held your stock.
Let’s say you’ve held a share of Alphabet’s stock for four months. This year, your Alphabet action is transformed into 20 actions. If you decide to sell five shares for profit, you will be liable for short-term capital gains tax since you held your shares for a year or less.
If you want the best tax rates, be sure to hold your shares for more than a year before selling. Here are the 2022 long-term capital gains tax rates that you can unlock if you’re patient.
|
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% |
And after?
As previously stated, you don’t have to do anything before or after the Alphabet stock split. Your brokerage will make sure the details are ironed out so you can get the extra shares into your account.
If you decide to sell stocks, you can prepare for tax time by adding the appropriate tax forms to your list. Other than that, the stock split won’t be a big deal for your taxes. You’ll just have the pleasure of waking up to more shares of the company without buying additional shares.
10 stocks we prefer to Alphabet (A stocks)
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They just revealed what they think are the ten best stocks investors can buy right now…and Alphabet (A-shares) wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
* Portfolio Advisor Returns as of January 10, 2022
Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Charlene Rhinehart, CPA has no position in the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares). The Motley Fool recommends Alphabet (C-shares). The Motley Fool has a disclosure policy.
