How do I create losses to offset tax bill?

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pennywise88
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How do I create losses to offset tax bill?

Post by pennywise88 »

First question: What are ways to offset big tax years? Let’s say I expect to have a tax year where I’ll owe 20m in capital gains (sale of company). What could I do to reduce this tax liability? Is there anything with real estate, insurance products, or other business dealings that could help me reduce my tax bill? What other options are out there?

Second question: if I have 100m invested in a 60/40 portfolio using vanguard etfs, what can I do to offset the taxes on the taxable dividends and cap gains each year?
livesoft
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Re: How do I create losses to offset tax bill?

Post by livesoft »

Donate up to 50% of your income to charity every year. That works for both questions.
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anon_investor
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Re: How do I create losses to offset tax bill?

Post by anon_investor »

pennywise88 wrote: Wed Jun 23, 2021 10:12 pm First question: What are ways to offset big tax years? Let’s say I expect to have a tax year where I’ll owe 20m in capital gains (sale of company). What could I do to reduce this tax liability? Is there anything with real estate, insurance products, or other business dealings that could help me reduce my tax bill? What other options are out there?

Second question: if I have 100m invested in a 60/40 portfolio using vanguard etfs, what can I do to offset the taxes on the taxable dividends and cap gains each year?
If you have that much money, you can afford to hire a CPA, no?
ivgrivchuck
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Re: How do I create losses to offset tax bill?

Post by ivgrivchuck »

pennywise88 wrote: Wed Jun 23, 2021 10:12 pm First question: What are ways to offset big tax years? Let’s say I expect to have a tax year where I’ll owe 20m in capital gains (sale of company). What could I do to reduce this tax liability? Is there anything with real estate, insurance products, or other business dealings that could help me reduce my tax bill? What other options are out there?
You should probably seek professional advice :) It would likely be well worth it.
Second question: if I have 100m invested in a 60/40 portfolio using vanguard etfs, what can I do to offset the taxes on the taxable dividends and cap gains each year?
avoid selling your holdings and there are no capital gains to worry about. I doubt that much can be done about dividends.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
Hyperchicken
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Re: How do I create losses to offset tax bill?

Post by Hyperchicken »

"How do I create losses to offset tax bill?"

Is that really your question, how to lose money?
nalor511
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Re: How do I create losses to offset tax bill?

Post by nalor511 »

Hyperchicken wrote: Thu Jun 24, 2021 12:27 am "How do I create losses to offset tax bill?"

Is that really your question, how to lose money?
I think it's pretty clear this person probably meant tax losses rather than real losses
vested1
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Re: How do I create losses to offset tax bill?

Post by vested1 »

Buy high, sell low.
aristotelian
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Re: How do I create losses to offset tax bill?

Post by aristotelian »

Consult a tax attorney. Could you sell equity in the company over a couple of years to spread out the hit? The only way to "generate losses" will lose more money than you save.
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galawdawg
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Re: How do I create losses to offset tax bill?

Post by galawdawg »

When did the sale of your company take place? viewtopic.php?f=1&t=290641

As suggested, a tax attorney or CPA who specializes in tax planning can provide you advice on your tax questions and how you might be able to reduce, or minimize the impact of, your tax liability.

But at the end of the day, sometimes you just need to pay the tax man! 8-)
Hyperchicken
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Re: How do I create losses to offset tax bill?

Post by Hyperchicken »

nalor511 wrote: Thu Jun 24, 2021 2:03 am
Hyperchicken wrote: Thu Jun 24, 2021 12:27 am "How do I create losses to offset tax bill?"

Is that really your question, how to lose money?
I think it's pretty clear this person probably meant tax losses rather than real losses
What is the difference? A loss is a loss.
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RickBoglehead
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Re: How do I create losses to offset tax bill?

Post by RickBoglehead »

galawdawg wrote: Thu Jun 24, 2021 4:33 am When did the sale of your company take place? viewtopic.php?f=1&t=290641

As suggested, a tax attorney or CPA who specializes in tax planning can provide you advice on your tax questions and how you might be able to reduce, or minimize the impact of, your tax liability.

But at the end of the day, sometimes you just need to pay the tax man! 8-)
OP needs to consult with professionals, as suggested in the other thread also.
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fyre4ce
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Re: How do I create losses to offset tax bill?

Post by fyre4ce »

pennywise88 wrote: Wed Jun 23, 2021 10:12 pm First question: What are ways to offset big tax years? Let’s say I expect to have a tax year where I’ll owe 20m in capital gains (sale of company). What could I do to reduce this tax liability? Is there anything with real estate, insurance products, or other business dealings that could help me reduce my tax bill? What other options are out there?
For a capital gain of that size, most of the usual tricks (contributing traditional, maybe setting up a cash balance plan) won't put much of a dent in it. As someone else suggested, you could look at an installment sale, but it might not make much of a difference, because you're definitely going to be in the top tax bracket every year - spreading it out won't mean you can pay a lower tax rate on it.

If you have any other investments you can sell at a loss (tax loss harvesting) that would help offset it. Probably your best bet is to accumulate years of carry-forward losses from your $100M taxable portfolio from years of diligent tax loss harvesting. For example, in 2020 stocks lost 20% temporarily. If you were able to harvest all those losses, that would be a $100M x 60% x 20% = $12M losses. With only $3,000/year applied against other income, losses will stick around for a while and can be used to offset a large gain, like the sale of a business. Whether you have enough time to accumulate $20M of carry forward losses depends on how far in the future this gain occurs, and what the market does between now and then.

With your level of income and assets, you definitely need to hire a tax attorney and estate planning attorney, and these questions should best be directed toward them. That said, I would caution you against being sold abusive tax evasion schemes. I won't list any of the more common ones here, but you should avoid any IRS Listed Transactions for a variety of reasons. The Bogleheads forums prohibit discussions of abusive tax shelters, so this is the wrong place if you were looking for advice on that. I would say you should pay the 23.8% on your $20M gain, and together with the rest of your portfolio be happy that you can live a life of luxury many times over. I say this not from a moralistic perspective, but rather that you're more likely to be happy if you feel lucky that you have what you do, and look for ways to use your wealth to do good in your own life and in your community, rather than always asking, how can I get more?
pennywise88 wrote: Wed Jun 23, 2021 10:12 pm Second question: if I have 100m invested in a 60/40 portfolio using vanguard etfs, what can I do to offset the taxes on the taxable dividends and cap gains each year?
For stocks, it's worth looking at tax-managed funds, like VTCLX and VTMSX. For bonds, maybe a tax-free bond fund like VTEAX / VTEB would have a higher after-tax yield than what your taxable bonds are paying. State taxes also factor in. What state do you live in?

Edit: I also like the suggestion of contacting Vanguard about their Institutional class shares. There looks to be a $5M minimum but you can easily beat that. Their Institutional Plus shares have a $100M minimum, which takes off another basis point or so.
Last edited by fyre4ce on Thu Jun 24, 2021 3:27 pm, edited 1 time in total.
dphilipps
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Re: How do I create losses to offset tax bill?

Post by dphilipps »

Avoiding the cost of a good CPA or tax attorney may be penny-wise, but more likely it will be pound-foolish.
4nickt
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Re: How do I create losses to offset tax bill?

Post by 4nickt »

Befriend an IRS agent. They should have the best answers.
babystep
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Re: How do I create losses to offset tax bill?

Post by babystep »

pennywise88 wrote: Wed Jun 23, 2021 10:12 pm First question: What are ways to offset big tax years? Let’s say I expect to have a tax year where I’ll owe 20m in capital gains (sale of company). What could I do to reduce this tax liability? Is there anything with real estate, insurance products, or other business dealings that could help me reduce my tax bill? What other options are out there?

Second question: if I have 100m invested in a 60/40 portfolio using vanguard etfs, what can I do to offset the taxes on the taxable dividends and cap gains each year?
Great question. Hiring the tax attorney would be worthwhile for such large amounts.

I would add few more things to consider in addition to the great suggestions above.

1) QoZ.
2) Start a corporation and manage the investments under that corporation. I am not qualified to know the details but this is an option that I came to know about.
3) Let us assume that 100m is invested in 60/40, say 60m in a tax managed equity etf and 40m in muni. One could put 60m in VUG to minimize the dividend drag. 60m at 0.6% is 360k and muni is all tax free so you might pay maybe 23.8% tax + state tax if any. Federal tax will be less than 80k in tax.

If minimizing the tax is a big problem then by doing any such strategy you would have an even bigger problem at hand. Let us say it keeps getting accumulated now what are you going to do then?
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