TAX PLANNING CASES
Jay is single and works as a salesperson. In December of the current year, he is selected as the company's outstanding salesperson. In recognition of this honor, he receives a $75,000 bonus, which puts him in the 39.6% tax bracket. Jay owns 2,400 shares of stock in Amtrav Corporation, which qualifies as small business stock. His broker has advised him to sell most, if not all, of his Amtrav stock. If he sells all his shares in the current year, he will recognize a $25 per share loss on the stock. Unfortunately, even if he sells all his stock, he will remain in the 39.6% tax bracket. He expects his marginal tax rate will drop to 25% next year but will be 28% and 33%, respectively, for the years after that. He does not anticipate any other capital gains or losses during the next 3 years. If Jay's goal is to maximize his net cash flow, develop a strategy for how many shares and in what year(s) he should sell his Amtrav stock. Assume that if he does not sell all his stock in the current year, his loss per share will remain constant and that the time value of money is 8%.