Reinvesting dividend in Tax Account

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indexonlyplease
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Reinvesting dividend in Tax Account

Post by indexonlyplease » Wed Sep 13, 2017 3:10 pm

This year I started putting money into the Vanguard Total Stock Market. Taxed advantage maxed out and needed to increase the equity of my AA.

The question is do I reinvest the dividend or request to put somewhere else. I read this topic but not sure. I would like to keep it simple and just reinvest if it does not matter.

I am in the 25% tax bracket.

Thanks,

livesoft
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Re: Reinvesting dividend in Tax Account

Post by livesoft » Wed Sep 13, 2017 3:12 pm

Based on the limited info you just wrote, I would simply automatically reinvest. Set your Cost Basis Method to Specific Identification right away if it is not already set to that.
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FrugalConservative
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Re: Reinvesting dividend in Tax Account

Post by FrugalConservative » Wed Sep 13, 2017 3:24 pm

Does Specific Identification . Vanguard states that this requires more record keeping and for one to be more hands on. What exactly do they mean by this. I never set mine and have it set to average cost, would it be beneficial for me to set my taxable accounts to specific identification. Thanks for taking the time to respond.

livesoft
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Re: Reinvesting dividend in Tax Account

Post by livesoft » Wed Sep 13, 2017 3:27 pm

Specific Identification does not require more record keeping on your part unless you have shares purchased before 2012. Do you?

Otherwise, Vanguard is required by law to keep records for you. Do they? They do for me.
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indexonlyplease
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Re: Reinvesting dividend in Tax Account

Post by indexonlyplease » Wed Sep 13, 2017 3:57 pm

Meaning set up an excel sheet to keep track of each purchase of shares and cost??

And this is for tax purpose when you sell in future??

livesoft
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Re: Reinvesting dividend in Tax Account

Post by livesoft » Wed Sep 13, 2017 4:02 pm

indexonlyplease wrote:
Wed Sep 13, 2017 3:57 pm
Meaning set up an excel sheet to keep track of each purchase of shares and cost??

And this is for tax purpose when you sell in future??
I have never used an excel sheet for this, so I can tell you that is not necessary. Here is a thread showing how Vanguard keeps records for you with screen shots: viewtopic.php?t=179414

I basically just put a printout of my annual statement with the printout of my annual tax return.

You have to keep records whether you reinvest dividends or not AND whether you use Specific Identification or Average Cost. Vanguard has to keep records for you as well now.

Yes, this is for tax purpose when you sell in the future.
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indexonlyplease
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Re: Reinvesting dividend in Tax Account

Post by indexonlyplease » Thu Sep 14, 2017 7:29 am

Good information. I will start keeping records.

Another question:

My 2 sons UTGMA accounts, should I have also keep track of the shares purchased. I invest $100 a month into their Vanguard accounts. I have been doing this for a long time. They are now 18,21. Never kept track of purchases. Both still students and work part time.

goingup
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Re: Reinvesting dividend in Tax Account

Post by goingup » Thu Sep 14, 2017 8:26 am

livesoft wrote:
Wed Sep 13, 2017 4:02 pm
You have to keep records whether you reinvest dividends or not AND whether you use Specific Identification or Average Cost. Vanguard has to keep records for you as well now.
Of course it's smart to keep records of purchases but truthfully I never have. It's not optimal but it works just fine. Vanguard and other brokers keep track of our purchases.

livesoft
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Re: Reinvesting dividend in Tax Account

Post by livesoft » Thu Sep 14, 2017 8:31 am

indexonlyplease wrote:
Thu Sep 14, 2017 7:29 am
My 2 sons UTGMA accounts, should I have also keep track of the shares purchased. I invest $100 a month into their Vanguard accounts. I have been doing this for a long time. They are now 18,21. Never kept track of purchases. Both still students and work part time.
Absolutely. A U[T/G]MA is a taxable account. You should consider tax-gain harvesting to ameliorate the future tax hit. Actually, get them to figure it out and do it.

I suspect that Vanguard has not kept good track of the many $100 transactions for your children. It could cause problems for them when they sell.

Full disclosure: Our kids had/have UTMAs. Their financial institution has kept track of their transactions since the accounts were started in the 1990s, so they have no problem with tax-gain harvesting and/or cost basis.
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indexonlyplease
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Re: Reinvesting dividend in Tax Account

Post by indexonlyplease » Sat Sep 16, 2017 11:33 am

Follow up on Tax Gain Harvesting. We read the Wiki here. So it looks like we could sell up to his yearly income in capital gains. Since this was a UTMA is he taxed on all capital gains made before age 21 (Florida UTMA). Or do the capital gains and dividends start now on his taxes?

Also, is the Tax Gain Harvesting better or should he just sell and put the money into his Roth IRA each year until money gone??

livesoft
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Re: Reinvesting dividend in Tax Account

Post by livesoft » Sat Sep 16, 2017 11:38 am

I'm not sure what exactly you are asking. Unrealized capital gains are not taxed. Only realized capital gains flow to one's tax return. Presumably your children have determined each and every year whether they were required to file a tax return and did so in those years they were required to do so.

If they have no other money to put in a Roth as eligible contributions, then I think the UTMA is a good source for such contributions. Of course, their parents could just also give them money to put into their Roths if they wanted to.
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indexonlyplease
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Re: Reinvesting dividend in Tax Account

Post by indexonlyplease » Sat Sep 16, 2017 11:46 am

livesoft wrote:
Sat Sep 16, 2017 11:38 am
I'm not sure what exactly you are asking. Unrealized capital gains are not taxed. Only realized capital gains flow to one's tax return. Presumably your children have determined each and every year whether they were required to file a tax return and did so in those years they were required to do so.

If they have no other money to put in a Roth as eligible contributions, then I think the UTMA is a good source for such contributions. Of course, their parents could just also give them money to put into their Roths if they wanted to.
Yes captial gains are when he sells. So eventhough money was in UTMA he still will pay capital gain taxes in the future when he sells?

With the UTMA was the benefit just not having to pay the dividends each yr? Our accountant has knowledge of the UTMA.

So, if he starts the Tax Gain Harvesting now in the low tax bracket, his capital gains when he sells in the future will start from now.

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TheTimeLord
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Re: Reinvesting dividend in Tax Account

Post by TheTimeLord » Sat Sep 16, 2017 11:51 am

indexonlyplease wrote:
Wed Sep 13, 2017 3:10 pm
This year I started putting money into the Vanguard Total Stock Market. Taxed advantage maxed out and needed to increase the equity of my AA.

The question is do I reinvest the dividend or request to put somewhere else. I read this topic but not sure. I would like to keep it simple and just reinvest if it does not matter.

I am in the 25% tax bracket.

Thanks,
Personally I don't automatically since the dividends are going to be taxed I evaluate what the best use of the money is when the dividend is received. Sometimes its reinvest, sometimes rebalance and occasionally its spend it.
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livesoft
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Re: Reinvesting dividend in Tax Account

Post by livesoft » Sat Sep 16, 2017 12:05 pm

indexonlyplease wrote:
Sat Sep 16, 2017 11:46 am
Yes captial gains are when he sells. So eventhough money was in UTMA he still will pay capital gain taxes in the future when he sells?
When he sells, he will realize capital gains. Whether he pays taxes will depend on what his tax return tells him, but the capital gains will certainly go on his tax return and he should get a 1099-B any year that he sells. He should have gotten a 1099-DIV for every year that dividends have been paid, but some places will only send 1099-DIV if dividends exceed a threshold. But even if
there was no 1099-DIV, the dividends would have be reported on any tax return that was filed.

With the UTMA was the benefit just not having to pay the dividends each yr? Our accountant has knowledge of the UTMA.
No. Dividends were paid every year, but a child can receive a bit of income without owing taxes on dividends and capital gains. Your accountant apparently doesn't explain anything to you.
So, if he starts the Tax Gain Harvesting now in the low tax bracket, his capital gains when he sells in the future will start from now.
What? Maybe you are thinking about Cost Basis which if one uses Specific Identification is the amount paid for new shares whenever they are bought.
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indexonlyplease
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Re: Reinvesting dividend in Tax Account

Post by indexonlyplease » Sat Sep 16, 2017 12:42 pm

Ok I am understanding.

Thanks for the help

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