DON’T GIVE INVESTMENT advice to clients. That’s something I’ve repeatedly learned as a tax lawyer. Still, when financial markets gyrate, many clients want advice about taxes, especially the seemingly simple rules for capital gains—and I have a longstanding fondness for eating three times a day. Let’s start with the basics. Take an individual who sells an investment that she has owned for more than 12 months. Any increase in its value from its cost basis is taxed at her long-term capital gains rate—15% for most individuals, but as high as 23.8% for those who are in the top ordinary income-tax bracket of 39.6% and subject to the 3.8% Medicare surtax on investment income. It can get worse. She surrenders more to the IRS when her profit is from the sale of an asset held for 12 months or less. Her short-term capital gain is taxed at higher ordinary income-tax rates—the same rates that apply to income sources like salaries and pensions. The dilemma: Should savvy investors opt to realize short-term gains, so as to nail down profits, albeit causing them to be nicked for taxes at the same rates as ordinary income? Or is the wiser strategy to stand pat until those profits become long-term, meanwhile hazarding declining prices that could more than offset the lower taxes? Consider an example. Let’s say Norma Bates’s regular income-tax bracket is 25%. (In 2017, that rate applies to taxable income between $37,950 and $91,900 for singles and between $75,900 and $153,100 for joint filers.) Norma has a sizable unrealized gain on shares of Beefsteak Uranium, a volatile stock she has owned for fewer than 12 months. She’s considering selling her BU shares for fear of plummeting prices, perhaps caused by terrorist attacks or world instability (cue countries like North Korea, Iran and Russia). Norma’s worst fear: photos of BU’s top execs being booked on charges of securities fraud and larceny, a result of cooking the books, spending company funds on personal indulgences or some other kind of corporate chicanery. Her first option: Unload the shares now and secure the short-term gain, but lose 25% of her profit to the IRS. Depending on where she lives, she may also owe state and even city taxes. Her other option: Hold off on a sale until the gain becomes long-term, and forfeit no more than 15% of it to the IRS, plus local levies. How much of a drop can Norma endure while waiting until she qualifies for that lower rate and still be no worse off after taxes? For the answer, she can use this three-step calculation:

• Figure her after-tax short-term profit from her BU shares.
• Divide this amount by her after-tax profit on the same amount of long-term gain.
• Multiply the short-term gain by the resulting decimal.

To see how the math work, let’s plug in some numbers. Suppose Norma’s paper profit is $10,000. Her combined federal and state bracket is 30% for short-term gains. For long-term gains, it’s 20%.

• A $10,000 gain taxed at 30% entitles the tax collectors to $3,000, leaving Norma with $7,000.
• The same $10,000 taxed at 20% leaves her with $8,000. Divide $7,000 by $8,000 and you get 0.875.
• Multiply $10,000 by 0.875 and the result is $8,750. A smaller long-term profit of $8,750 taxed at 20% leaves Norma with $7,000—the same profit she would have received were she to sell for a $10,000 gain and be taxed at 30%.

When does a decision to sweat out the 12-month holding period leave Norma worse off after taxes? Not until her paper profit drops from its present $10,000 to below $8,750—that is, by more than $1,250. Is it worth waiting? Clients have to decide that one for themselves. Julian Block writes and practices law in Larchmont, NY, and was formerly with the IRS as a special agent (criminal investigator). His previous blog was Hitting Home. This article is excerpted from Julian Block’s Year-Round Tax Savings, available at JulianBlockTaxExpert.com. Follow Julian on Twitter @BlockJulian.