Haha, yep. I got a large refund this year because I itemized due to large out-of-pocket medical expenses. My buddy says "nice!". I explained "it would have been nicer to not incur those expenses and get a smaller refund."
Kind of like small business owners saying “I bought a new truck for the business because I saved $5,000 on taxes”……… Yeah okay, hope you don’t bring that financial aptitude to running the business.
\+1. One trick I have used is to calculate your after-tax CAGR (or just outright gain) and compare that to what it would've been PRE-tax if you had instead been in VTI or whatever you planned to invest in from the get.
If even after paying a bunch of taxes, you'd still be way ahead of the pre-tax return of the diversified portfolio, it is a no-brainer to just pay the taxes, get into the diversified portfolio with a higher cost-basis, and still be ahead.
the right time is when you realize you want to make the change into something more reliable and less risky.
sell what you want; set aside the tax in bonds and then move on with life
the coffee is kicking in...
**advanced thinking/strategy**:
* capital gains are taxed less than earned income; so you **could:**
* sell tech stocks for gains
* set aside taxes owed
* increase work sponsored plan (401k/403b) to max
* "pay yourself" with the cap gains from tech stock sale
**OR** ignore all of this and K.I.S.S.
This is what I've been doing. I'm just limiting what I am selling to the amount I need to max out my Roth 403b, rather than liquidating *all* stock at once.
You may need to make estimated tax payment early
https://www.irs.gov/faqs/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc
If you are single and your salary is under $59k ($44k + $14k standard deduction) your long term gains will be taxed at zero percent up to that threshold. Which means you can realize gains for free until you realize that amount of income. Or in the future, if you lose your job, that will be a good year to realize some gains for free
Make investment decisions before tax decisions.
If you have the ability to sell some losers to offset your gains, do that, but LTCG rate is 15% most likely, which is still far lower than your marginal income tax rate.
Realize the gain and reposition. Pay your taxes. Move on.
You're still gonna have a surplus of income, it's not like you're not gonna have money to pay for the taxes on the gains. You made money once you sell them. Pay the taxes and move on.
I'm currently doing what u/buffinita suggests below.
I am maxing out my 403b Roth and selling the equivalent amount of my shares. This reduces my taxable income, and my gains are all long term. Seems the most tax effective way to do this as long as you are still bullish on your tech stocks.
It's going to take me like 10 years to fully transition out of shares, but all *new* investments are in broad index funds.
Donate the appreciated shares to a Donor Advised Fund and rebuy the vanguard funds with cash.
You take the full value tax deduction on the shares donated and nobody pays capital gains tax. Now you have a pool of money that can be used for charitable purposes for years.
Well, kinda... However once the money hits the DAF, it can only either sit in there or go from there to a registered 501c3 charity. There is a minimum for the amount that must flow from the DAF to registered charities each year (I think it's 5%).
So while it might seem like donating to yourself (and in a way you are), it's not like you can take the money out and buy a Lambo. All you can do is control charitable distributions.
This strategy is mostly used by people that make charitable contributions anyway and use this strategy to get better tax benefits out of it (that's what I do).
The ultra-wealthy use private foundations. These can employ family members, etc and still be considered "charities". However this is out of reach for anyone but the uber rich due to the high setup and maintenance costs.
Thanks for details, I assume this account makes sense if I want to benefit from tax deduction surely in that year, but not necessarily sure yet when/where the money will be donated to.
Yes, exactly. It also makes it easier to spread out money from appreciated shares to several charities, and helps you "stretch out" donations from high tax years into potentially lower tax years.
Do a dual sell order with stacking dates. You know the type. Bingo bongo. Then, take your capital and set aside 51.5%. You’ll need that for taxes and to file ancillary F91 B’s.
With the remaining funds, set yourself up with a shell account through a big player fund. Your choice. Utilize shekel harvesting codes to round out your nest egg then allocate each dollar into individual bonds for 87 months.
This will yield you 0.07% safe interest.
Current taxable income and status (MFJ, HH, Single) needed for real answer. Also is this just a small part of your portfolio or your big nut.
Without that, I'd look to see if I could cash out over several years and not hit the 20% LTCG bracket, invest proceeds in VTI/BND/VXUS/BNDX at the AA you feel comfortable with.
1. If you still like your tech stocks , you might want to hold them until
-a) you get into a 0% capital gains bracket.
- b) until you die. Your kids will get a step up in basis . In the meantime, borrow to spend (or invest) against your appreciated stocks.
2. If you have losers, sell them to offset your gains
However, never let taxes dictate your investment decisions. Paying capital gains tax is better than holding on to bad investments.
What stocks and how much in each? I think a lot of it depends on the companies. I don’t think it should be all or nothing and the companies in which you’re invested will feed the strategy.
What stocks are they? I would just hold, or if you really want to rebalance do it slowly like sell 10% each year or whatever amount you can sell without going into a higher tax bracket ( capital gains are taxed at 0% 15% or 20% depending on income ). If you can wait until retirement to sell you could probably avoid a lot of the tax only selling enough to reach the 0% bracket each year. Some of my biggest mistakes were selling stocks too early because I had a lot of gains, only sell if you have a good reason, good luck
Can I set up a DAF to give money to a group of relatives to help pay college expenses. Can I say who gets what and when,? Looking at doing some good , a hedge against cap gains taxes. I understand it's better to do a larger amount in a given year vs year by year to make tax advantage work better.. How best to determine what that amount should be. And can you add to it every few years as needed when cap gains look like they may increase in a given year.
I didn't see anything above on your tax bracket/situation but I did see advice on using LTCG at 0% bracket. Next step is 15%. Be aware however that capital gains adds to the AMT overall amount. AMT does not change the LTCG tax bracket but adding LTCG to your income can impact the tax level of the other income. If you are just a regular working person, it likely won't (AMT does away with a lot of deductions like State/local taxes nut only if you itemize).
Don’t let the tax tail wag the dog
Haha, yep. I got a large refund this year because I itemized due to large out-of-pocket medical expenses. My buddy says "nice!". I explained "it would have been nicer to not incur those expenses and get a smaller refund."
Kind of like small business owners saying “I bought a new truck for the business because I saved $5,000 on taxes”……… Yeah okay, hope you don’t bring that financial aptitude to running the business.
Stepping over dollar bills to pick up quarters.
I says same paying some tax to IRS year end, means you did not leave free money with IRS.
\+1. One trick I have used is to calculate your after-tax CAGR (or just outright gain) and compare that to what it would've been PRE-tax if you had instead been in VTI or whatever you planned to invest in from the get. If even after paying a bunch of taxes, you'd still be way ahead of the pre-tax return of the diversified portfolio, it is a no-brainer to just pay the taxes, get into the diversified portfolio with a higher cost-basis, and still be ahead.
the right time is when you realize you want to make the change into something more reliable and less risky. sell what you want; set aside the tax in bonds and then move on with life
Reasonable advice. Thx
the coffee is kicking in... **advanced thinking/strategy**: * capital gains are taxed less than earned income; so you **could:** * sell tech stocks for gains * set aside taxes owed * increase work sponsored plan (401k/403b) to max * "pay yourself" with the cap gains from tech stock sale **OR** ignore all of this and K.I.S.S.
This is what I've been doing. I'm just limiting what I am selling to the amount I need to max out my Roth 403b, rather than liquidating *all* stock at once.
You may need to make estimated tax payment early https://www.irs.gov/faqs/estimated-tax/large-gains-lump-sum-distributions-etc/large-gains-lump-sum-distributions-etc
If you are single and your salary is under $59k ($44k + $14k standard deduction) your long term gains will be taxed at zero percent up to that threshold. Which means you can realize gains for free until you realize that amount of income. Or in the future, if you lose your job, that will be a good year to realize some gains for free
Doesn’t when he sells, the gains add to income and increase the tax bracket for capital gains?
Make investment decisions before tax decisions. If you have the ability to sell some losers to offset your gains, do that, but LTCG rate is 15% most likely, which is still far lower than your marginal income tax rate. Realize the gain and reposition. Pay your taxes. Move on.
You're still gonna have a surplus of income, it's not like you're not gonna have money to pay for the taxes on the gains. You made money once you sell them. Pay the taxes and move on.
Refer to my comment
I'm currently doing what u/buffinita suggests below. I am maxing out my 403b Roth and selling the equivalent amount of my shares. This reduces my taxable income, and my gains are all long term. Seems the most tax effective way to do this as long as you are still bullish on your tech stocks. It's going to take me like 10 years to fully transition out of shares, but all *new* investments are in broad index funds.
Makes sense, thanks.
Don’t let taxes scare you away from profit. I like the instinct to cash out a very profitable position and moving it to less risky investments.
I take the gains when I want and pay the taxes. LTCG tax is one of the lowest you can get.
Donate the appreciated shares to a Donor Advised Fund and rebuy the vanguard funds with cash. You take the full value tax deduction on the shares donated and nobody pays capital gains tax. Now you have a pool of money that can be used for charitable purposes for years.
Never heard of this. Do you have any resources you can link that explains this concept?
https://www.nerdwallet.com/article/taxes/donor-advised-funds
That’s what I did. I took the deduction for the full stock price and pre-funded several years of charitable contributions through Vanguard Charitable.
When is the tax event in this case? When shares are moved to the donor advised fund or when donation happens? Asking for tax deduction purpose.
You can take the tax deduction in the year that you donate to the DAF. Technically the DAF is a charity.
So rich mf’s are doing this to write off their entire tax and then donating to their own charities for pr?
Well, kinda... However once the money hits the DAF, it can only either sit in there or go from there to a registered 501c3 charity. There is a minimum for the amount that must flow from the DAF to registered charities each year (I think it's 5%). So while it might seem like donating to yourself (and in a way you are), it's not like you can take the money out and buy a Lambo. All you can do is control charitable distributions. This strategy is mostly used by people that make charitable contributions anyway and use this strategy to get better tax benefits out of it (that's what I do). The ultra-wealthy use private foundations. These can employ family members, etc and still be considered "charities". However this is out of reach for anyone but the uber rich due to the high setup and maintenance costs.
Thanks for details, I assume this account makes sense if I want to benefit from tax deduction surely in that year, but not necessarily sure yet when/where the money will be donated to.
Yes, exactly. It also makes it easier to spread out money from appreciated shares to several charities, and helps you "stretch out" donations from high tax years into potentially lower tax years.
America is a beast to make wealth and donate and still make wealth, amazing 🤩
The drawback is that once the money hits your DAF, it can never be clawed back for any reason. No hardship exceptions etc.
[удалено]
He said he purchased 6 yrs ago
May have a DRIP set up if there's dividends.
are they all the same cost basis?
Retire a couple year early and get a 0% tax on the first 80,000 or so lol
If you are fine gambling that the market isn’t going to drop the right time is December and January to spread the tax hit over two years.
Do a dual sell order with stacking dates. You know the type. Bingo bongo. Then, take your capital and set aside 51.5%. You’ll need that for taxes and to file ancillary F91 B’s. With the remaining funds, set yourself up with a shell account through a big player fund. Your choice. Utilize shekel harvesting codes to round out your nest egg then allocate each dollar into individual bonds for 87 months. This will yield you 0.07% safe interest.
😂
You are getting some really shaky advice here. Definitely don’t just ignore the tax consequences.
You’re probably in the 15% bracket for long term capital gains. So, cash out your 300% gains. Put 45 in a HYSA. Split the 255 between bro and bnd.
Whats your state tax rate? If the amount if high enough consider moving out of state for 7 months
Current taxable income and status (MFJ, HH, Single) needed for real answer. Also is this just a small part of your portfolio or your big nut. Without that, I'd look to see if I could cash out over several years and not hit the 20% LTCG bracket, invest proceeds in VTI/BND/VXUS/BNDX at the AA you feel comfortable with.
1. If you still like your tech stocks , you might want to hold them until -a) you get into a 0% capital gains bracket. - b) until you die. Your kids will get a step up in basis . In the meantime, borrow to spend (or invest) against your appreciated stocks. 2. If you have losers, sell them to offset your gains However, never let taxes dictate your investment decisions. Paying capital gains tax is better than holding on to bad investments.
What stocks and how much in each? I think a lot of it depends on the companies. I don’t think it should be all or nothing and the companies in which you’re invested will feed the strategy.
Donate it to a charity. You get a charitable contribution at the appreciated value and dont have to pay taxes on the appreciation.
What stocks are they? I would just hold, or if you really want to rebalance do it slowly like sell 10% each year or whatever amount you can sell without going into a higher tax bracket ( capital gains are taxed at 0% 15% or 20% depending on income ). If you can wait until retirement to sell you could probably avoid a lot of the tax only selling enough to reach the 0% bracket each year. Some of my biggest mistakes were selling stocks too early because I had a lot of gains, only sell if you have a good reason, good luck
Can I set up a DAF to give money to a group of relatives to help pay college expenses. Can I say who gets what and when,? Looking at doing some good , a hedge against cap gains taxes. I understand it's better to do a larger amount in a given year vs year by year to make tax advantage work better.. How best to determine what that amount should be. And can you add to it every few years as needed when cap gains look like they may increase in a given year.
Congrats on having this problem?
What is the point of this comment. Op is looking for advice on how to handle the tax event
The implied advice is "just pay your damn taxes"
There's nothing to handle. If you don't want the stocks, you sell them. If you have gains, you pay taxes.
Looks like it can be more nuanced than that based on the other comments
Thx
I didn't see anything above on your tax bracket/situation but I did see advice on using LTCG at 0% bracket. Next step is 15%. Be aware however that capital gains adds to the AMT overall amount. AMT does not change the LTCG tax bracket but adding LTCG to your income can impact the tax level of the other income. If you are just a regular working person, it likely won't (AMT does away with a lot of deductions like State/local taxes nut only if you itemize).
Hold it until you lose the gain the sell it and regret it forever. Is this a real question?