xram wrote:If an investor sells shares/lots That we're acquired as dividends but then decreased in value,, how does this affect the decision to TLH versus shares that were purchased?
Gotta pay taxes on dividends obviously? So loss must be significant to make up for tax burden?
Sorry for beginner level question. I have never yet sold shares in a taxable account and/or tax loss harvested yet.
Thanks
Yes, you pay taxes on all distributions on Sch B. That money is cash. If you ask Vanguard to send it to your checking account, you can write checks on it and no additional tax reporting is required.
Additional tax reporting is only required if you use that cash to buy more shares and then sell them.
Reporting the sale of multiple small lots.
You may be thinking of the reporting burden when you allow distributions to be automatically reinvested, thereby creating many small lots needing to be reported.
Most recommend redirecting all distributions to your MM or savings account and only buying new fund lots to rebalance. In this way, you can buy >$1K lots at a time. Then it is easier to TLH when you have fewer/larger lots to report. And easier to compute the size of the total TLH potential.
In 2008, when I first TLH, I stopped automatically reinvesting distributions and cleaned up/sold all my small lots. Yes it was a pain talking to the CSR to sell 0.015 shares of TSM, but not too bad if you write down and double-check every lot description before you make the call.
To report the single-date sale of many small lots (each with a different purchase dates), you use the IRS keyword "Various" to report the original lots' purchase dates.
Example: Assume you have 10 small lots of TSM to report on Sch D. You bought the 10 lots for $20K (total) on 10 separate dates. You sold the 10 lots for $10K (total) on 1 Nov 2008. On Sch D, you report the sale of the 10 lots on one line as:
Description: TSM, xx.xxx shares sold
Sale date: 1 Nov 2008
Sale price: $10K
Purchase date: Various (this is how you accounted for the 10 separate purchase dates)
Purchase price: $20K
Result: $10K loss.
So the tax reporting of multiple small lots is not that bad, and will be made easier by buying larger lots.
I sold some shares last year and a
new tax form (to list each transaction) has been added to make the Sch D (now a summary of all transactions) simpler. Otherwise, the tax software handled everything. I just entered the same old transactions information and two forms, instead of one, were generated. Efiled and it as all transparent to me.
How do you compute the size of your potential TLH?
With multiple small lots and pencil and paper tracking, it is a pain.
In 2008, with multiple small lots and Excel to track my investments, I modified my Excel spreadsheet to compute and total my potential TLH opportunity for every lot of every fund I owned. (Easy enough to compute the loss/gain on each lot, then total my TLH potential.)
So, if you use Excel to track your investments, adding the coding to compute/total any TLH opportunity is easy enough to do. Then you don't really care about the size of each lot... except for the hassle of selling numerous small lots.
Being lazy, my IPS calls for TLHing when my total TLH potential is >$3K from all assets.
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.