Nathan Detroit owns 400 shares of the drink company Monster Beverage Corp., which he purchased for $122 per share. Nathan read in the Wall Street Journal that the company’s board of directors had voted to split the stock 3-for-1. Just before the stock split, Monster Beverage shares were trading for $132.59. Answer the following questions about the impact of the stock split on his holdings and taxes. Nathan is in the 24% federal income tax bracket. He will own 1200 shares after the split. Immediately after the split, what do you expect the value of Monster Beverage to be?  Compare the total value of Nathan’s stock holdings before and after the split, given that the price of Monster Beverage stock immediately after the split was $44.78. What do you find? Does Nathan experience a gain or loss on the stock as a result of the 2-for-1 split?

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.