Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

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guitarguy
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Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 21, 2017 9:13 am

Hi All,

As a quick background, my mom has asked me for help with her finances. The previous thread touched on a few issues (housing, her revocable living trust, etc), but to start with I would really like to focus on the portfolio side of things and consult with this amazing forum on whether or not I'm developing a good plan for her. If interested, more info here: viewtopic.php?f=2&t=232203&p=3621167#p3621167

Quick Big-Picture:

Age
66 (67 in January) and in good health

Income
Retired, collecting $22,499 annual SSA benefit, and dividends from her IRA and taxable account

Debt
None

Her Regular IRA at Vanguard
$250k Total Bond Market Admiral (VBTLX)
$77k SP500 Index Admiral (VFIAX)

Taxable
$20k in brick and mortar savings
$116k [approx] in DTE Energy Company stock at Wells Fargo

Real Estate
She owns her home, current value maybe $120k

Tentative Goals/Questions:
To start with, my mom hasn't been actively managing her finances for years, so this is the first look that anyone has had in quite some time. So my goal in all of this when she asked me for help is to explain things to her to help her understand everything that's going on, and help her come up with a plan for putting her portfolio in a better position.

1. After discussing her risk levels and exposure to the market and so forth, our first step was to allocate a big chunk of her IRA into bonds, prior to this she was 100% stocks (the single stock in DTE Energy Co and VFIAX) plus the $20k brick and mortar cash. This step is done as shown in her new AA posted above, and her AA now is closer to 50/50 which she was comfortable with from our discussions.

2. The amount of her portfolio - 1/4 of it basically - that she has invested in a single stock is concerning to me for sure, and she agreed when I explained to her how risky this is. I would like to help her develop a plan to sell this off and diversify it, and my thought is to try to get it mostly if not all complete before she turns 70 1/2 and her taxable income is increase via forced distributions from her IRA. Does this make sense as an appropriate next step for her? I think it does, but would there be any good argument for instead just letting it be despite it being such a "risky" holding in comparison to a mutual fund?

3. Assuming the answer to the questions in 2 are Yes and No...there will obviously be tax implications (LTCGs and potential additional taxes on her SS benefits) to selling the DTE stock, which is what I would like help figuring out a plan for dealing with. To start, here is a summary of her 2016 tax return - fairly straightforward:

9a/b: - $3969 - (her ordinary dividend income - qualified dividends from DTE stock)
13: - variable - (the amount of LTCGs she would incur from selling off DTE stock)
15b: - $5710 - (IRA distributions - dividends - from her Vanguard account)
16b: - $2675 - (small annual pension she collects)
20a: - $22,499 - (her total annual SS benefit - currently all non-taxable)
22: - $12,354 - (total income)

37: - $12,354 - (AGI)

40: - $7850 - (standard deduction for senior)
42: - $4050 - (personal exemption)
43: - $454 - (taxable income)
44: - $45 - (tax)


Tentative Plan
1. Set her IRA to reinvest the dividends rather than take them as distributions
2. Sell off DTE stock in chunks, while planning to keep LTCGs low enough to minimize taxes on her SS benefit (below 85% threshold?)
3. Keep some DTE stock proceeds to replace dividends from IRA and from DTE as income that she's used to receiving quarterly
4. Contribute maximum of $6500 to IRA to reduce taxable income from LTCGs Can't do this - she has no earned income.
5. Take remaining DTE stock proceeds and invest in Vanguard taxable account in TSM index so it's more diversified

Based on a quick spreadsheet I made up, she would've been able to net about $16-17k in capital gains before she crossed that 85% SS tax threshold (with a $6500 contribution to her IRA). I need to get the data for 2017, update the tax tables, etc, and redo the projection, but it seems feasible to get a good majority of this stock sold off in the next few years if we start before year's end and follow this plan. [Note: I'm awaiting access to her Wells Fargo online account so hopefully I can dig up the cost basis on this stock. It was all purchased decades ago.]

One thing I'm not sure of for tax year 2017 specifically: should she be worried about penalties if she sells a big chunk of stock here before the end of the year - netting a much higher tax bill than last year obviously...maybe $2k - and hasn't paid any quarterly estimated taxes? This is unfamiliar ground to me.

I would greatly appreciate any critiques of this plan, things to think about, etc.

Does this sound like a smart plan?
Last edited by guitarguy on Tue Nov 21, 2017 9:55 am, edited 1 time in total.

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WoodSpinner
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by WoodSpinner » Tue Nov 21, 2017 9:42 am

OP,

My suggestion is to sell ALL DTE stock for the simple reason it is too risky and does not meet her portfolio objectives. Pay the taxes and invest based on your plan. You can make a quarterly payment by Jan 15, 2018 for FY2017.

There are thousands of threads on the issue of Divedends versus selling shares—best advice is to not invest looking for divedends, but be ready to sell shares if needed.

Not sure how you are going to contribute to an IRA if there is no earned income (I believe you said she was retired...)?

8-)

guitarguy
Posts: 1766
Joined: Mon Dec 20, 2010 4:10 pm

Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 21, 2017 9:51 am

WoodSpinner wrote:
Tue Nov 21, 2017 9:42 am
OP,

My suggestion is to sell ALL DTE stock for the simple reason it is too risky and does not meet her portfolio objectives. Pay the taxes and invest based on your plan. You can make a quarterly payment by Jan 15, 2018 for FY2017.

There are thousands of threads on the issue of Divedends versus selling shares—best advice is to not invest looking for divedends, but be ready to sell shares if needed.


Not sure how you are going to contribute to an IRA if there is no earned income (I believe you said she was retired...)?


8-)
Ahh...darn it. Good point. She won't be able to contribute to her IRA with income only from LTCGs. Thank you for catching my mistake there.

veyron
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Joined: Thu Apr 13, 2017 11:28 am

Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by veyron » Tue Nov 21, 2017 10:09 am

If the tax you expect to owe on your tax return is less than $1000, you do not need to make estimated tax payments and will not be subject to penalty.

On the other hand, as mentioned above, if you have received income unevenly throughout the year, as you will if you sell the DTE stock now, you may be able to avoid penalties by using the annualized installment method (see IRS Form 2210) and making your only estimated tax payment in Jan 2018.

guitarguy
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 21, 2017 11:12 am

I think I was making a pretty bad mistake in calculating the amount of tax she would owe...by forgetting about the reduced tax rate on capital gains. This thread was super helpful!!

viewtopic.php?t=219736

Based on this thread, and the explanation of how LTCGs and QDIs are taxed at a 0% rate until you hit the top of the 15% bracket read here: https://www.kitces.com/blog/understandi ... -in-basis/

She should be looking at a much lower tax bill than I originally calculated. Perhaps we can sell off the entire $100k here in the end of 2017 and early in 2018, thereby redistributing all of the DTE stock and keeping the taxes of the sale primarily at the 0% LTCG rate!

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FiveK
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by FiveK » Tue Nov 21, 2017 3:06 pm

guitarguy wrote:
Tue Nov 21, 2017 11:12 am
I think I was making a pretty bad mistake in calculating the amount of tax she would owe...by forgetting about the reduced tax rate on capital gains. This thread was super helpful!!

viewtopic.php?t=219736
Using the spreadsheet mentioned in that thread ( Personal_finance_toolbox) and the numbers in the OP, one gets the following for her federal marginal rate vs. LTCG. If, for example, there is $40K of gain in the $100K it could be better to take $20K this year and $20K next year to avoid the 40% marginal rate.
Image

cas
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Tue Nov 21, 2017 3:27 pm

guitarguy wrote:
Tue Nov 21, 2017 9:13 am
To start, here is a summary of her 2016 tax return - fairly straightforward:

9a/b: - $3969 - (her ordinary dividend income - qualified dividends from DTE stock)
13: - variable - (the amount of LTCGs she would incur from selling off DTE stock)
15b: - $5710 - (IRA distributions - dividends - from her Vanguard account)
16b: - $2675 - (small annual pension she collects)
20a: - $22,499 - (her total annual SS benefit - currently all non-taxable)
22: - $12,354 - (total income)

37: - $12,354 - (AGI)

40: - $7850 - (standard deduction for senior)
42: - $4050 - (personal exemption)
43: - $454 - (taxable income)
44: - $45 - (tax)
Um, I hope I'm wrong, but I think the accountant may have figured out the tax on the $454 in taxable income wrong. (Guitarguy mentioned that an accountant does the taxes in a different post.)

This is a concern because I think he/she didn't handle the Qualified Dividends correctly. (And handling QD/LTCG correctly will be essential if you sell a chunk of the stock and generate (potentially) tens of thousands of $ in LTCG.)

It looks to me like the accountant (incorrectly) used the 2016 IRS 1040 Tax Tables to figure the tax. If the Tax Tables are used, the accountant treated the qualified dividends as if they were ordinary income (and incurred a 10% tax on them.). The correct method (as far as I know) is to take advantage of the special (0% in your mother's case) tax rate on the qualified dividends by using the Qualified Dividends and Capital Gains Worksheet for the IRS 1040.

I know this is a bit of a rabbit trail away from the *portfolio* question you are trying to keep us focused on. But it also seems important (if I am right) in the context of making sure taxes are done correctly if significant amounts of stock are sold. $45 in (possibly) erroneous 2016 taxes probably isn't a huge deal. But make the same mistake on tens of thousands of dollars of long term capital gains in 2017 or 2018 ... that would add up to big money in erroneous taxes.

My reasoning:

The "does this make sense" broad strokes reasoning:
  • Taxable income ($454) is nominally within the 10% tax bracket (0 - $9275, single filer).
  • 10% x $454 = $45.40, which looks suspicously like the $45 tax reported on line 44.
  • But your mother had $3900+ in qualified dividends.
  • $3900+ in QD is larger than the $454 in taxable income
  • Therefore, since QDs "float to the top," the whole $454 of taxable income should be taxed at the special rate for Qualified Dividends
  • $454 is well below the top of the 2016 15% bracket ($37,650).
  • Therefore all QD should be taxed at 0% tax rate
  • $454 x 0% = $0 (NOT $45)

Long and gory method:

2016 IRS 1040 form, line 44 says
44 Tax (see instructions)
Instructions for Line 44 says (among a bunch of other stuff)
Qualified Dividends and Capital Gain Tax Worksheet.

Use the Qualified Dividends and Capital Gain Tax Worksheet, later, to figure your tax if you do
not have to use the Schedule D Tax Worksheet and if any of the following applies.
  • You reported qualified dividends on Form 1040, line 9b.
(https://www.irs.gov/pub/irs-pdf/i1040gi.pdf p. 41-42)

The Qualified Dividends and Capital Gains Tax Worksheet, according to my reckoning, should be filled out as appears below. (End result: It says a tax of $0 (not $45) should go on line 44. This agrees with my initial "broad strokes" estimate of $0 tax from above.).

(This worksheet looks complicated, but it basically breaks apart the 1040 Line 43 Taxable Income into 2 piles: ordinary income & QD/LTCG. Then it enforces having the QD/LTCG "float to the top" of the taxable income and applies the special QD/LTCG tax rates (0%, 15%, 20% at various levels of taxable income) to it. )
2016 Qualified Dividends and Capital Gains Tax Worksheet
(https://www.irs.gov/pub/irs-pdf/i1040gi.pdf p. 44)

Line 1: 454
Line 2: 3969
Line 3: 0 (no stock sale/long term cap gains in 2016)
Line 4: 3969 +0 = 3969
Line 5: 0
Line 6: 3969 -0 = 3969
Line 7: 454 - 3969 = -3515 => 0
Line 8: 37,650
Line 9: smaller(454 or 37,650) => 454
Line 10: smaller(0 or 454) => 0
Line 11: 454 - 0 = 454 (Taxed at 0%)
Line 12: smaller(454 or 3969) => 454
Line 13: 454
Line 14: 454-454 = 0
Line 15: 415,050
Line 16: smaller(454 or 415,050) => 454
Line 17: 0 + 454 = 454
Line 18: 454 - 454 = 0
Line 19: smaller(0 or 0) => 0
Line 20: 0 * 15% = 0
Line 21: 454+ 0 = 454
Line 22: 454 - 454 = 0
Line 23: 454 - 454 = 0
Line 24: 2016 Tax Table for $0, Single Filer = 0
Line 25: 0 + 0 + 0 = 0
Line 26: 2016 Tax Table for $454, Single Filer = $46
Line 27: smaller ($0 or $46) => 0

Enter Line 27 on the Form 1040, line 44: $0 (NOT $46)
Again, my main concern here is making sure you mother's taxes get done correctly if you do decided to sell a significant chunk of stock.

(And it certainly isn't impossible that someone else will point out that I am in error somewhere, in which case this will be a big, embarrassing "never mind" and a learning experience for me. On the other hand, I've found errors in accountants' tax work before (greeted with an "Oh, you're right!" by the accountants.))

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FiveK
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by FiveK » Tue Nov 21, 2017 3:52 pm

cas wrote:
Tue Nov 21, 2017 3:27 pm
Um, I hope I'm wrong, but I think the accountant may have figured out the tax on the $454 in taxable income wrong.
You are correct. Your numbers essentially duplicate the tax spreadsheet that generated the chart (that treated the income as 2017 numbers).

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#Cruncher
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by #Cruncher » Tue Nov 21, 2017 4:46 pm

guitarguy wrote:
Tue Nov 21, 2017 9:13 am
Based on a quick spreadsheet I made up, she would've been able to net about $16-17k in capital gains before she crossed that 85% SS tax threshold(s) ...
Given $22,499 of SS and $2,675 of non-SS ordinary income your mother could incur $20,076 of long term capital gains (LTCG) plus qualified dividend income (QDI) before reaching the 85% SS threshold. However, she could incur another $5,617 before she has to pay any tax. Another $6,625 of LTCG would cause only an 8.5% marginal tax rate. Only when LTCG and QDI reach $32,318 would the tax bite become substantial. The next $4,963 of LTCG would be taxed at a marginal rate of 36.25% or 40.5%.

The impact on federal income tax of increased LTCG and QDI is quite complicated when the taxpayer also receives Social Security benefits. As your mother incurs more LTCG, her taxable situation passes through several stages.

Code: Select all

   ----- LTCG & QDI -----   SS    Marginal
    From       To   Range  Taxed  Tax Rate           Notes
   ------   ------  ------ -----  --------  -----------------------------
1: 11,076 - 20,076  9,000   50%     0.00%   each $100 of LTCG makes $50 of SS taxable
2: 20,076 - 25,693  5,617   85%     0.00%   each $100 of LTCG makes $85 of SS taxable
3: 25,639 - 32,318  6,625   85%     8.50%   = 85% X 10%
4: 32,318 - 36,664  4,346   85%    36.25%   = 85% X 10% + LTCG 185% X 15%
5: 36,664 - 37,281    617   85%    40.50%   = 85% X 15% + LTCG 185% X 15%
6: 37,281 -                  0%    15.00%   = LTCG 100% X 15%
  1. Each $100 of LTCG makes $50 of SS taxable but LTCG taxed at 0% and ordinary taxable income < $0.
  2. Each $100 of LTCG makes $85 of SS taxable but LTCG taxed at 0% and ordinary taxable income < $0.
  3. Each $100 of LTCG makes $85 of SS taxable which is taxed at 10% but LTCG taxed at 0%.
  4. Each $100 of LTCG makes $85 of SS taxable which is taxed at 10% and which pushes $85 of LTCG into 15% bracket. That plus the $100 LTCG itself are both taxed at 15%.
  5. Each $100 of LTCG makes $85 of SS taxable which is taxed at 15% and which pushes $85 of LTCG into 15% bracket. That plus the $100 LTCG itself are both taxed at 15%.
  6. Maximum 85% of SS has already been taxed so only marginal tax is 15% on LTCG.
Here is the detailed tax computation from the Compare sheet of my Marginal Tax Rates speadsheet. I confirmed the federal tax with the TaxAct Calculator. Figures are for a 2017 single taxpayer taking the age 65+ standard deduction.

Code: Select all

Social Security 50% threshhold    25,000   -------------------------------------------------->
Social Security 85% threshhold    34,000   -------------------------------------------------->
Ord Income Tax Bracket 15%         9,325   -------------------------------------------------->
Ord Income Tax Bracket 25%        37,950   -------------------------------------------------->
Social Security Benefit           22,499   22,499   22,499   22,499   22,499   22,499   22,499
Non-SS Ordinary Income             2,675    2,675    2,675    2,675    2,675    2,675    2,675
LTCG & QDI                        11,076   20,076   25,693   32,318   36,664   37,281   38,281 <==
SS Relevant Income                25,001   34,001   39,618   46,243   50,589   51,206   52,206
50% SS taxable                         0    4,500    4,500    4,500    4,500    4,500    4,500
85% SS taxable                       -          0    4,775   10,406   14,100   14,624   14,624
Total SS taxable                       0    4,500    9,275   14,906   18,600   19,124   19,124
Adjusted gross income             13,751   27,251   37,643   49,899   57,939   59,080   60,080

Code: Select all

Deductions plus Exemptions        11,950   11,950   11,950   11,950   11,950   11,950   11,950
Taxable Income                     1,801   15,301   25,693   37,949   45,989   47,130   48,130
LTCG & QDI Taxable                 1,801   15,301   25,693   32,318   36,664   37,281   38,281
Ordinary Taxable                     -        -        -      5,631    9,325    9,849    9,849
Ordinary taxable @ 15%               -        -        -        -          0      524      524
Ordinary taxable @ 10%               -        -        -      5,631    9,325    9,325    9,325
LTCG & QDI taxable @ 15%             -        -        -        -      8,039    9,180   10,180
LTCG & QDI taxable @ 0%            1,801   15,301   25,693   32,318   28,625   28,101   28,101
Ordinary tax @ 15%                   -        -        -        -          0       79       79
Ordinary tax @ 10%                   -        -        -        563      933      933      933
LTCG & QDI tax @ 15%                 -        -        -        -      1,206    1,377    1,527
Total tax                            -        -        -        563    2,138    2,388    2,538

Code: Select all

Increased LTCG & QDI                    9,000    5,617    6,625    4,346      617    1,000
Increased taxable SS                    4,500    4,774    5,631    3,694      524      -  
Increased tax                             -        -        563    1,575      250      150
Marginal SS taxable                    50.00%   85.00%   85.00%   85.00%   85.00%    0.00%
Marginal tax rate                       0.00%    0.00%    8.50%   36.25%   40.50%   15.00%

guitarguy
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Joined: Mon Dec 20, 2010 4:10 pm

Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 21, 2017 5:18 pm

cas wrote:
Tue Nov 21, 2017 3:27 pm
guitarguy wrote:
Tue Nov 21, 2017 9:13 am
To start, here is a summary of her 2016 tax return - fairly straightforward:

9a/b: - $3969 - (her ordinary dividend income - qualified dividends from DTE stock)
13: - variable - (the amount of LTCGs she would incur from selling off DTE stock)
15b: - $5710 - (IRA distributions - dividends - from her Vanguard account)
16b: - $2675 - (small annual pension she collects)
20a: - $22,499 - (her total annual SS benefit - currently all non-taxable)
22: - $12,354 - (total income)

37: - $12,354 - (AGI)

40: - $7850 - (standard deduction for senior)
42: - $4050 - (personal exemption)
43: - $454 - (taxable income)
44: - $45 - (tax)
Um, I hope I'm wrong, but I think the accountant may have figured out the tax on the $454 in taxable income wrong. (Guitarguy mentioned that an accountant does the taxes in a different post.)

This is a concern because I think he/she didn't handle the Qualified Dividends correctly. (And handling QD/LTCG correctly will be essential if you sell a chunk of the stock and generate (potentially) tens of thousands of $ in LTCG.)

It looks to me like the accountant (incorrectly) used the 2016 IRS 1040 Tax Tables to figure the tax. If the Tax Tables are used, the accountant treated the qualified dividends as if they were ordinary income (and incurred a 10% tax on them.). The correct method (as far as I know) is to take advantage of the special (0% in your mother's case) tax rate on the qualified dividends by using the Qualified Dividends and Capital Gains Worksheet for the IRS 1040.

I know this is a bit of a rabbit trail away from the *portfolio* question you are trying to keep us focused on. But it also seems important (if I am right) in the context of making sure taxes are done correctly if significant amounts of stock are sold. $45 in (possibly) erroneous 2016 taxes probably isn't a huge deal. But make the same mistake on tens of thousands of dollars of long term capital gains in 2017 or 2018 ... that would add up to big money in erroneous taxes.

My reasoning:

The "does this make sense" broad strokes reasoning:
  • Taxable income ($454) is nominally within the 10% tax bracket (0 - $9275, single filer).
  • 10% x $454 = $45.40, which looks suspicously like the $45 tax reported on line 44.
  • But your mother had $3900+ in qualified dividends.
  • $3900+ in QD is larger than the $454 in taxable income
  • Therefore, since QDs "float to the top," the whole $454 of taxable income should be taxed at the special rate for Qualified Dividends
  • $454 is well below the top of the 2016 15% bracket ($37,650).
  • Therefore all QD should be taxed at 0% tax rate
  • $454 x 0% = $0 (NOT $45)

Long and gory method:

2016 IRS 1040 form, line 44 says
44 Tax (see instructions)
Instructions for Line 44 says (among a bunch of other stuff)
Qualified Dividends and Capital Gain Tax Worksheet.

Use the Qualified Dividends and Capital Gain Tax Worksheet, later, to figure your tax if you do
not have to use the Schedule D Tax Worksheet and if any of the following applies.
  • You reported qualified dividends on Form 1040, line 9b.
(https://www.irs.gov/pub/irs-pdf/i1040gi.pdf p. 41-42)

The Qualified Dividends and Capital Gains Tax Worksheet, according to my reckoning, should be filled out as appears below. (End result: It says a tax of $0 (not $45) should go on line 44. This agrees with my initial "broad strokes" estimate of $0 tax from above.).

(This worksheet looks complicated, but it basically breaks apart the 1040 Line 43 Taxable Income into 2 piles: ordinary income & QD/LTCG. Then it enforces having the QD/LTCG "float to the top" of the taxable income and applies the special QD/LTCG tax rates (0%, 15%, 20% at various levels of taxable income) to it. )
2016 Qualified Dividends and Capital Gains Tax Worksheet
(https://www.irs.gov/pub/irs-pdf/i1040gi.pdf p. 44)

Line 1: 454
Line 2: 3969
Line 3: 0 (no stock sale/long term cap gains in 2016)
Line 4: 3969 +0 = 3969
Line 5: 0
Line 6: 3969 -0 = 3969
Line 7: 454 - 3969 = -3515 => 0
Line 8: 37,650
Line 9: smaller(454 or 37,650) => 454
Line 10: smaller(0 or 454) => 0
Line 11: 454 - 0 = 454 (Taxed at 0%)
Line 12: smaller(454 or 3969) => 454
Line 13: 454
Line 14: 454-454 = 0
Line 15: 415,050
Line 16: smaller(454 or 415,050) => 454
Line 17: 0 + 454 = 454
Line 18: 454 - 454 = 0
Line 19: smaller(0 or 0) => 0
Line 20: 0 * 15% = 0
Line 21: 454+ 0 = 454
Line 22: 454 - 454 = 0
Line 23: 454 - 454 = 0
Line 24: 2016 Tax Table for $0, Single Filer = 0
Line 25: 0 + 0 + 0 = 0
Line 26: 2016 Tax Table for $454, Single Filer = $46
Line 27: smaller ($0 or $46) => 0

Enter Line 27 on the Form 1040, line 44: $0 (NOT $46)
Again, my main concern here is making sure you mother's taxes get done correctly if you do decided to sell a significant chunk of stock.

(And it certainly isn't impossible that someone else will point out that I am in error somewhere, in which case this will be a big, embarrassing "never mind" and a learning experience for me. On the other hand, I've found errors in accountants' tax work before (greeted with an "Oh, you're right!" by the accountants.))
My fault...sorry for my post error that made you waste your time typing this! :oops: But good catch!!

To explain, this isn't a direct copy of her actual tax return...it's copy/pasted from the spreadsheet I made which actually was erroneous in the way it calculated the total taxes owed at the time (I mentioned this in a post earlier up in the thread that I was calculating the taxes wrong). I've sense updated it and now it applies the 0% LTCG/QDI tax bracket as it's supposed to. On her actual tax return, she actually sold a small chunk (the annoyingly small JP Morgan account I referenced in the other post) and incurred a $900 loss or something on it. Her actual tax was calculated correctly using the worksheet, and it was $0.

guitarguy
Posts: 1766
Joined: Mon Dec 20, 2010 4:10 pm

Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 21, 2017 5:56 pm

#Cruncher wrote:
Tue Nov 21, 2017 4:46 pm
guitarguy wrote:
Tue Nov 21, 2017 9:13 am
Based on a quick spreadsheet I made up, she would've been able to net about $16-17k in capital gains before she crossed that 85% SS tax threshold(s) ...
Given $22,499 of SS and $2,675 of non-SS ordinary income your mother could incur $20,076 of long term capital gains (LTCG) plus qualified dividend income (QDI) before reaching the 85% SS threshold. However, she could incur another $5,617 before she has to pay any tax. Another $6,625 of LTCG would cause only an 8.5% marginal tax rate. Only when LTCG and QDI reach $32,318 would the tax bite become substantial. The next $4,963 of LTCG would be taxed at a marginal rate of 36.25% or 40.5%.

The impact on federal income tax of increased LTCG and QDI is quite complicated when the taxpayer also receives Social Security benefits. As your mother incurs more LTCG, her taxable situation passes through several stages.

Code: Select all

   ----- LTCG & QDI -----   SS    Marginal
    From       To   Range  Taxed  Tax Rate           Notes
   ------   ------  ------ -----  --------  -----------------------------
1: 11,076 - 20,076  9,000   50%     0.00%   each $100 of LTCG makes $50 of SS taxable
2: 20,076 - 25,693  5,617   85%     0.00%   each $100 of LTCG makes $85 of SS taxable
3: 25,639 - 32,318  6,625   85%     8.50%   = 85% X 10%
4: 32,318 - 36,664  4,346   85%    36.25%   = 85% X 10% + LTCG 185% X 15%
5: 36,664 - 37,281    617   85%    40.50%   = 85% X 15% + LTCG 185% X 15%
6: 37,281 -                  0%    15.00%   = LTCG 100% X 15%
  1. Each $100 of LTCG makes $50 of SS taxable but LTCG taxed at 0% and ordinary taxable income < $0.
  2. Each $100 of LTCG makes $85 of SS taxable but LTCG taxed at 0% and ordinary taxable income < $0.
  3. Each $100 of LTCG makes $85 of SS taxable which is taxed at 10% but LTCG taxed at 0%.
  4. Each $100 of LTCG makes $85 of SS taxable which is taxed at 10% and which pushes $85 of LTCG into 15% bracket. That plus the $100 LTCG itself are both taxed at 15%.
  5. Each $100 of LTCG makes $85 of SS taxable which is taxed at 15% and which pushes $85 of LTCG into 15% bracket. That plus the $100 LTCG itself are both taxed at 15%.
  6. Maximum 85% of SS has already been taxed so only marginal tax is 15% on LTCG.
Here is the detailed tax computation from the Compare sheet of my Marginal Tax Rates speadsheet. I confirmed the federal tax with the TaxAct Calculator. Figures are for a 2017 single taxpayer taking the age 65+ standard deduction.

Code: Select all

Social Security 50% threshhold    25,000   -------------------------------------------------->
Social Security 85% threshhold    34,000   -------------------------------------------------->
Ord Income Tax Bracket 15%         9,325   -------------------------------------------------->
Ord Income Tax Bracket 25%        37,950   -------------------------------------------------->
Social Security Benefit           22,499   22,499   22,499   22,499   22,499   22,499   22,499
Non-SS Ordinary Income             2,675    2,675    2,675    2,675    2,675    2,675    2,675
LTCG & QDI                        11,076   20,076   25,693   32,318   36,664   37,281   38,281 <==
SS Relevant Income                25,001   34,001   39,618   46,243   50,589   51,206   52,206
50% SS taxable                         0    4,500    4,500    4,500    4,500    4,500    4,500
85% SS taxable                       -          0    4,775   10,406   14,100   14,624   14,624
Total SS taxable                       0    4,500    9,275   14,906   18,600   19,124   19,124
Adjusted gross income             13,751   27,251   37,643   49,899   57,939   59,080   60,080

Code: Select all

Deductions plus Exemptions        11,950   11,950   11,950   11,950   11,950   11,950   11,950
Taxable Income                     1,801   15,301   25,693   37,949   45,989   47,130   48,130
LTCG & QDI Taxable                 1,801   15,301   25,693   32,318   36,664   37,281   38,281
Ordinary Taxable                     -        -        -      5,631    9,325    9,849    9,849
Ordinary taxable @ 15%               -        -        -        -          0      524      524
Ordinary taxable @ 10%               -        -        -      5,631    9,325    9,325    9,325
LTCG & QDI taxable @ 15%             -        -        -        -      8,039    9,180   10,180
LTCG & QDI taxable @ 0%            1,801   15,301   25,693   32,318   28,625   28,101   28,101
Ordinary tax @ 15%                   -        -        -        -          0       79       79
Ordinary tax @ 10%                   -        -        -        563      933      933      933
LTCG & QDI tax @ 15%                 -        -        -        -      1,206    1,377    1,527
Total tax                            -        -        -        563    2,138    2,388    2,538

Code: Select all

Increased LTCG & QDI                    9,000    5,617    6,625    4,346      617    1,000
Increased taxable SS                    4,500    4,774    5,631    3,694      524      -  
Increased tax                             -        -        563    1,575      250      150
Marginal SS taxable                    50.00%   85.00%   85.00%   85.00%   85.00%    0.00%
Marginal tax rate                       0.00%    0.00%    8.50%   36.25%   40.50%   15.00%
Thanks very much for the post! Your spreadsheet helped me figure out the math and understand exactly what I was doing wrong in the one that I made prior to fixing it, and now based on your numbers above, I just verified that mine works!!

I think a plan that makes sense is to sell as much of the stock as she can here before year's end, making sure to avoid the ~40% marginal tax rate hike. She'll pay 10% tax on a portion of her SS benefit, but it seems like a good trade off. Then, more than likely, repeat next year and the year after, which should essentially all but take care of reallocating this stock before she has to start taking her RMD.

These numbers above should work perfectly for next year (barring minor changes in standard deduction, brackets, etc) now that we've set her IRA to reinvest the dividends, but she has already taken IRA dividends in 2017 for Q1-Q3, so her income will be a little higher which will throw off these figures a bit. Thus far she's taken a total of $4395 in IRA distributions (dividends) this year. So with that added to her pension figure, her ordinary income (non-SS) comes to $7070. From another (hopefully now correct) spreadsheet calculation, she could incur a total of around $27,500 of LTCG+QDI income before the marginal tax rate starts to take off. Does that seem right?

Most importantly, does this plan make sense in the greater context of things? Is eating some taxes on a portion of her SS benefit a good trade off for locking in all these LTCGs at the 0% rate? Seems like it is...but just would like to make sure I'm not missing anything here!

Thank you all SO MUCH for the info. I've learned an incredible amount in the last 2 weeks since I was asked for help on this!! :D

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Tue Nov 21, 2017 7:30 pm

guitarguy wrote:
Tue Nov 21, 2017 5:18 pm
Her actual tax was calculated correctly using the worksheet, and it was $0.
Good. I was worried about an accountant making that type of error.

Also ... if she owed $0 in tax last year, I think she is successfully in a "safe harbor" on federal estimated tax for this year. One of the "safe harbors" is witholding or paying in estimated tax 100% of what you owed last year. And if she owed $0 to the IRS last year, then I would think $0 in estimated tax would meet the safe harbor test?

"Topic Number: 306 - Penalty for Underpayment of Estimated Tax" https://www.irs.gov/taxtopics/tc306
Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.
If you sell a significant chunk of DTE in 2017, you'll need to keep estimated taxes and the safe harbor rules in mind for 2018.

The bigger problem as far as estimated taxes may be state tax. You'll have to look into how her state (did you say Michigan in the prior post?) deals with capital gains, but many states treat them as ordinary income. That would mean she probably owed state tax last year (but you'll have to look up how Michigan taxes work).

I know nothing about Michigan taxes, but if I google "Michigan estimated tax safe harbor" I come up with the quote below. (That "Penalty is 25% for failing to file estimated payments or 10% of underpaid tax per quarter" sentence sounds like it could add up, if it means what it seems to mean on the surface.) If your mother did owe more than $0 to Michigan last year (and doesn't have any withholding so far this year), it looks like maybe owing less than $500 in Michigan tax might be a safe harbor? (if I'm reading the document correctly). Anyway ... you might want to dig into the details. (And if I'm completely off base about her living in Michigan, just substitute the correct state name in that google search.)

"Michgan Taxes: Do I need to make estimated payments?
http://www.michigan.gov/taxes/0,4676,7- ... -,00.html
The Michigan Income Tax Act requires that a person must make estimated tax payments quarterly if the person's income tax liability, after credits and withholding, will be $500 or more for the year.

Your income tax liability accrues on income as it is earned.

Failure to file and make the required estimated payments may result in an assessment or bill for the penalty and interest being issued by the Michigan Department of Treasury.

Based on the IRS estimated income tax requirements, to avoid penalties for failure to make estimated tax payments, your total tax paid through credits and withholding must be:

90% of your current year's tax liability or 100% of your total prior years tax liability. Estimates for taxpayers with an adjusted gross income of $150,000 or more for joint or single filers ($75,000 or more for married filing separate) must equal 90% of the current year's liability or 110% of the previous year's liability.

Farmers, fishermen and seafarers may have to pay estimates but they do have other filing options. For more information refer to the MI-1040 Instruction Booklet .

Penalty is 25% for failing to file estimated payments or 10% of underpaid tax per quarter.
I've seen various threads go by on bogleheads with people discussing the best techniques for reaching a safe harbor for estimated tax if you realize late in the year that you need one. I don't have such a thread at my fingertips, but a search might lead you to something useful. Alan S. might have wise words on it in some thread.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by FiveK » Tue Nov 21, 2017 7:41 pm

cas wrote:
Tue Nov 21, 2017 7:30 pm
And if she owed $0 to the IRS last year, then I would think $0 in estimated tax would meet the safe harbor test?
Yes.

See https://www.irs.gov/publications/p17:
You don't have to pay estimated tax for 2017 if you meet all three of the following conditions.
* You had no tax liability for 2016.
* You were a U.S. citizen or resident alien for the whole year.
* Your 2016 tax year covered a 12-month period.
You had no tax liability for 2016 if your total tax was zero or you didn't have to file an income tax return. For the definition of "total tax" for 2016, see Pub. 505, chapter 2.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by FiveK » Tue Nov 21, 2017 8:14 pm

#Cruncher wrote:
Tue Nov 21, 2017 4:46 pm
The impact on federal income tax of increased LTCG and QDI is quite complicated when the taxpayer also receives Social Security benefits.
Sure is. Compare the previous chart, which included the $5710 tIRA distribution, with the one below that assumes $0 tIRA distribution:
Image

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 21, 2017 8:17 pm

Re: State taxes, yes we are in MI.

I don’t have her return to look at, but she says she got a $1,200 property tax credit last year. I don’t know if there’s an income phase out of some sort for this credit or not. Need to look into this.

I contacted her accountant and I’m having her advise on both the federal plan (does it make sense tax-wise) and then the impact this will have on her state taxes.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 21, 2017 8:25 pm

FiveK wrote:
Tue Nov 21, 2017 8:14 pm
#Cruncher wrote:
Tue Nov 21, 2017 4:46 pm
The impact on federal income tax of increased LTCG and QDI is quite complicated when the taxpayer also receives Social Security benefits.
Sure is. Compare the previous chart, which included the $5710 tIRA distribution, with the one below that assumes $0 tIRA distribution:
Image
Exactly. It *seems* like selling chunks annually over a 2-3 year span at amounts that keep her marginal tax rate below that hump is most appealing. She locks in the cap gains at 0% in exchange for paying a low rate tax on a portion of her SS benefits.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by FiveK » Tue Nov 21, 2017 8:27 pm

guitarguy wrote:
Tue Nov 21, 2017 8:25 pm
She locks in the cap gains at 0% in exchange for paying a low rate tax on a portion of her SS benefits.
Tastes great and less filling! ;)

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by 123 » Tue Nov 21, 2017 8:39 pm

Sell the DTE ASAP, looks like it's at an all-time high.
The closest helping hand is at the end of your own arm.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 21, 2017 8:47 pm

123 wrote:
Tue Nov 21, 2017 8:39 pm
Sell the DTE ASAP, looks like it's at an all-time high.
Not sure if your comment comes with a hint of sarcasm or not...but part of me thought of this. She’d have to endure some high taxation for the amounts that fall within that hump, but because of the safe harbor it would be a one time deal this year, she writes a check for the taxes, and then it would be over and done with. But then she loses out on the first almost $30k of cap gains at 0% next year...only a month away.

I just want to make sure I direct her towards the smartest decision.

We have all our money in tax advantages accounts, so this is all new territory for me.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by FiveK » Tue Nov 21, 2017 9:40 pm

guitarguy wrote:
Tue Nov 21, 2017 8:47 pm
I just want to make sure I direct her towards the smartest decision.
Put on your hindsight glasses and you'll know what that is was.

In your situation I'd likely decide to split the sales at least into two pieces, one for 2017 and one for 2018, based on the short time between now and 2018. That might or might not be a good decision, but one can second guess any choice.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Wed Nov 22, 2017 4:12 am

guitarguy wrote:
Tue Nov 21, 2017 8:47 pm
123 wrote:
Tue Nov 21, 2017 8:39 pm
Sell the DTE ASAP, looks like it's at an all-time high.
Not sure if your comment comes with a hint of sarcasm or not...but part of me thought of this.
Since the topic of selling all the DTE has been raised, let me throw out this little tidbit:

If your mother's Adjusted Gross Income (line 37 on the 1040, *not* the line 43 taxable income) were to go over $85,000, then her Medicare Part B and part D premiums would go up. This is called the Income Related Medicare Adjustment Amount (IRMAA). It is a surcharge that is completely separate from IRS taxes, except that it is based on the AGI from the IRS 1040. It would be deducted from your mother's SS check, just like her current Medicare premiums are. (And the $85,000 is one of those "cliff" thresholds where if you go over by $0.51, suddenly you owe a bunch more.)

I didn't mention IRMAA before because topping $85,000 in AGI didn't seem likely. However, if the DTE has been held for decades, it is possible that its value is mostly unrealized capital gains. (Hopefully you'll learn more about the unrealized capital gains when you get access to the Wells Fargo account.) If you sold it all in one tax year, it might be possible to reach an $85,000 AGI and have IRMAA considerations to become relevant.

So, if selling all the DTE in one year ever does become a serious option, make sure you read up on IRMAA:
"Medicare Premiums: Rules For Higher-Income Beneficiaries" https://www.ssa.gov/pubs/EN-05-10536.pdf
(The IRMAA brackets are on page 5.)

guitarguy wrote:
Tue Nov 21, 2017 8:47 pm
But then she loses out on the first almost $30k of cap gains at 0% next year...only a month away.
Speaking of the rapidly approaching end of year ... at one point you had said you were thinking of transferring the DTE in-kind from Wells Fargo to Vanguard ASAP, then doing any selling from the Vanguard account. You'll have to look into Wells Fargo fees for selling, but I'm guessing it would probably be better for your stress level to do any 2017 selling from the Wells Fargo account, let the dust settle, then transfer the cash and any remaining in-kind shares to Vanguard without having to worry about any transfer delays that might crop up.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Wed Nov 22, 2017 7:05 am

cas wrote:
Wed Nov 22, 2017 4:12 am
guitarguy wrote:
Tue Nov 21, 2017 8:47 pm
123 wrote:
Tue Nov 21, 2017 8:39 pm
Sell the DTE ASAP, looks like it's at an all-time high.
Not sure if your comment comes with a hint of sarcasm or not...but part of me thought of this.
Since the topic of selling all the DTE has been raised, let me throw out this little tidbit:

If your mother's Adjusted Gross Income (line 37 on the 1040, *not* the line 43 taxable income) were to go over $85,000, then her Medicare Part B and part D premiums would go up. This is called the Income Related Medicare Adjustment Amount (IRMAA). It is a surcharge that is completely separate from IRS taxes, except that it is based on the AGI from the IRS 1040. It would be deducted from your mother's SS check, just like her current Medicare premiums are. (And the $85,000 is one of those "cliff" thresholds where if you go over by $0.51, suddenly you owe a bunch more.)

I didn't mention IRMAA before because topping $85,000 in AGI didn't seem likely. However, if the DTE has been held for decades, it is possible that its value is mostly unrealized capital gains. (Hopefully you'll learn more about the unrealized capital gains when you get access to the Wells Fargo account.) If you sold it all in one tax year, it might be possible to reach an $85,000 AGI and have IRMAA considerations to become relevant.

So, if selling all the DTE in one year ever does become a serious option, make sure you read up on IRMAA:
"Medicare Premiums: Rules For Higher-Income Beneficiaries" https://www.ssa.gov/pubs/EN-05-10536.pdf
(The IRMAA brackets are on page 5.)

guitarguy wrote:
Tue Nov 21, 2017 8:47 pm
But then she loses out on the first almost $30k of cap gains at 0% next year...only a month away.
Speaking of the rapidly approaching end of year ... at one point you had said you were thinking of transferring the DTE in-kind from Wells Fargo to Vanguard ASAP, then doing any selling from the Vanguard account. You'll have to look into Wells Fargo fees for selling, but I'm guessing it would probably be better for your stress level to do any 2017 selling from the Wells Fargo account, let the dust settle, then transfer the cash and any remaining in-kind shares to Vanguard without having to worry about any transfer delays that might crop up.
Yeah...I think this is the strategy we need to employ. Making a sale through WF before the end of the year should be simple:

1. Don't worry about tax payments (safe harbor)
2. No need to worry about time it takes to transfer by staying put
3. Sell the $25k or whatever of the stock (calculate the proper amount minus the DTE QDIs she's received for 2017 YTD.
4. Deposit $1k or so into her savings account to "replace" the Q4 dividend she now won't be receiving from Vanguard IRA
5. Open a taxable account at Vanguard and invest all of the leftover funds from the DTE sale in TSM

For 2018, we may now have to consider:

1. Paying quarterly estimated taxes
2. Depending on when the stock is sold (thinking a lump sum early in the year) we'll have to decide how much to reinvest right away vs how much to set aside somewhere so I can automate her "dividends" that she's used to getting quarterly from the proceeds
3. How to open the new account? In her name vs in the trust (where it resides currently as noted in that other thread).
4. Whether to sell the rest of the stock, or break up into year 3

So for 2018 things get a little more complicated...

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Wed Nov 22, 2017 7:10 am

FiveK wrote:
Tue Nov 21, 2017 9:40 pm
guitarguy wrote:
Tue Nov 21, 2017 8:47 pm
I just want to make sure I direct her towards the smartest decision.
Put on your hindsight glasses and you'll know what that is was.

In your situation I'd likely decide to split the sales at least into two pieces, one for 2017 and one for 2018, based on the short time between now and 2018. That might or might not be a good decision, but one can second guess any choice.
Yeah...I wasn't really talking about market timing. I know the answer is "who knows" on that question. I was more talking about the taxes.

By breaking it up into 2017 and 2018 (at a minimum) she'll get that extra chunk of sales at 0%, as opposed to paying guaranteed higher taxes on it. Right? So to me...that tends itself towards being the smartest decision. Assuming of course, DTE Energy Co doesn't take a complete nose dive in the next 2-3 months. :?

This is the scary thing about single stocks eh? I'm glad I'm a buy and hold in tax advantaged account / hands off type.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Wed Nov 22, 2017 10:02 am

guitarguy wrote:
Wed Nov 22, 2017 7:05 am
3. Sell the $25k or whatever of the stock (calculate the proper amount minus the DTE QDIs she's received for 2017 YTD.
4. Deposit $1k or so into her savings account to "replace" the Q4 dividend she now won't be receiving from Vanguard IRA
5. Open a taxable account at Vanguard and invest all of the leftover funds from the DTE sale in TSM

For 2018, we may now have to consider:

2. Depending on when the stock is sold (thinking a lump sum early in the year) we'll have to decide how much to reinvest right away vs how much to set aside somewhere so I can automate her "dividends" that she's used to getting quarterly from the proceeds
Sounds like you are well on your way to a good plan. (I'm impressed how fast you've come up to speed on some difficult topics. I seem to recall that on the other thread I told you that the tax concepts involved with a taxable account weren't hard, but I wasn't anticipating the extent of the Social Security "hump" complications. You really got thrown in the deep end on learning about taxation of taxable accounts!)

One thing I was thinking ... and it looks like you've been thinking about it, too, some, given what I quoted above: Do you think you might want to put more than $1000 (out of the 2017 DTE sale proceeds) into the savings account (or some other similar relatively stable asset)?

FiveK's charts above show rather vividly that the key to being able to sell large chunks of the DTE at 0% tax is ceasing to take that $5000+ distribution from the IRA at ordinary tax rates (until RMDs start in 4 years). The corollary to that is that your mother will need to take a replacement distribution of $5000+ from the taxable account (at capital gains tax rates).

In addition, it sounds like there might be some cash flow turmoil over the next year or two:
  • possibly more federal/state 2017 and estimated 2018 taxes than your mother is accustomed to (depending how much DTE you sell)
  • cash flow turmoil around fixing up the house (bills), renting an apt or buying a condo (bills), selling the house (frees up the house $ once the sale goes through)
  • Ideally, you wouldn't want to sell any of the newly purchased TSM for a year so that any realized capital gains would be eligible for long term capital gains treatment. (Of course, if it is short term capital losses, instead, that is less of an issue or at least a different issue.)
Right now, you have the new portfolio set up in a very tax efficient way: all bonds in the IRA (aside from the $20,000 emergency/big bills fund in taxable), the tax-efficient TSM & remaining DTE planned for the taxable account.

(Oooo, I can just hear livesoft chastising me for promoting a behavioral finance trap in what I'm about to say ... and he's logically correct*)

Do you maybe want to give yourself (your mother) a bit more cash flow breathing room (above the usual $20,000 in taxable) until some milestone has been passed? (Options on the milestone might be ... you finish the DTE sales, or the house sells, or RMDs start). How would you (and your mother) feel if you were still in the midst of all those milestones, the stock market took a dive or got turbulent, all your bond allocation was in the IRA which you were trying not to touch, and you needed to sell some stock in taxable to meet cash flow needs?*

*This is where livesoft is technically correct about the behavioral finance trap. Technically, you *could* draw from the bond fund in the IRA without tax consequences by doing this:
  • raise the needed cash by selling depreciated stock in taxable (and take a capital loss that could be reported on taxes)
  • sell an equivalent amount of bonds in the IRA and buy an equivalent amount of stock in the IRA
  • Net result is as if you raised the cash by selling bonds (without an actual IRA distribution) and just moved some stock allocation from taxable to the IRA. Kind of like rearranging the furniture. But it takes a bit of psychological fortitude and financial savvy (i.e. from what you have said, it isn't a maneuver your mother could accomplish on her own without your help. As opposed to just writing a check from a savings account.)
Having written all that, maybe I've become more convinced about the validity of livesoft's argument and talked myself out of my own argument. On the other hand, sometimes I personally prefer to accept my human psychology, including its predictable irrationality about certain behavioral finance traps, and avoid some predictable stress (such as I might feel selling in a turbulent market, even if I was really just rearranging the furniture.) And the family psychology involved on whether your mother can just write a check from her savings account by herself or whether she needs to involve you to do some stock/bond sales transactions would seem to be a different issue entirely.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Wed Nov 22, 2017 11:42 am

cas wrote:
Wed Nov 22, 2017 10:02 am
guitarguy wrote:
Wed Nov 22, 2017 7:05 am
3. Sell the $25k or whatever of the stock (calculate the proper amount minus the DTE QDIs she's received for 2017 YTD.
4. Deposit $1k or so into her savings account to "replace" the Q4 dividend she now won't be receiving from Vanguard IRA
5. Open a taxable account at Vanguard and invest all of the leftover funds from the DTE sale in TSM

For 2018, we may now have to consider:

2. Depending on when the stock is sold (thinking a lump sum early in the year) we'll have to decide how much to reinvest right away vs how much to set aside somewhere so I can automate her "dividends" that she's used to getting quarterly from the proceeds
Sounds like you are well on your way to a good plan. (I'm impressed how fast you've come up to speed on some difficult topics. I seem to recall that on the other thread I told you that the tax concepts involved with a taxable account weren't hard, but I wasn't anticipating the extent of the Social Security "hump" complications. You really got thrown in the deep end on learning about taxation of taxable accounts!)
Thanks! It helps that (as Mrs. Guitarguy says) I'm a dork...I find all of this stuff super interesting. I maintain that I could've had a successful career in finance of some sort if I didn't go into engineering. Still, someday I may consider trying to merge the 2, but my considering moving out of my technical position and into a financial-based role is a topic for another thread. I already got my M.S. and going back for an MBA...meh. Plus I own my own business...so there's that. haha. Anyways...

I may never even have the opportunity to manage taxable accounts like this with my own finances...we're dumping everything into tax advantaged stuff maxing Roth IRAs and working up to maxing our 401k accounts so we have a LONG way to go before we start investing in taxable space, if ever. So, this was/is a great learning experience for me! I just want to make triple sure I learn enough so I don't make any stupid mistakes here...for obvious reasons.
cas wrote:
Wed Nov 22, 2017 10:02 am
One thing I was thinking ... and it looks like you've been thinking about it, too, some, given what I quoted above: Do you think you might want to put more than $1000 (out of the 2017 DTE sale proceeds) into the savings account (or some other similar relatively stable asset)?

FiveK's charts above show rather vividly that the key to being able to sell large chunks of the DTE at 0% tax is ceasing to take that $5000+ distribution from the IRA at ordinary tax rates (until RMDs start in 4 years). The corollary to that is that your mother will need to take a replacement distribution of $5000+ from the taxable account (at capital gains tax rates).

In addition, it sounds like there might be some cash flow turmoil over the next year or two:
  • possibly more federal/state 2017 and estimated 2018 taxes than your mother is accustomed to (depending how much DTE you sell)
  • cash flow turmoil around fixing up the house (bills), renting an apt or buying a condo (bills), selling the house (frees up the house $ once the sale goes through)
  • Ideally, you wouldn't want to sell any of the newly purchased TSM for a year so that any realized capital gains would be eligible for long term capital gains treatment. (Of course, if it is short term capital losses, instead, that is less of an issue or at least a different issue.)
Right now, you have the new portfolio set up in a very tax efficient way: all bonds in the IRA (aside from the $20,000 emergency/big bills fund in taxable), the tax-efficient TSM & remaining DTE planned for the taxable account.

(Oooo, I can just hear livesoft chastising me for promoting a behavioral finance trap in what I'm about to say ... and he's logically correct*)

Do you maybe want to give yourself (your mother) a bit more cash flow breathing room (above the usual $20,000 in taxable) until some milestone has been passed? (Options on the milestone might be ... you finish the DTE sales, or the house sells, or RMDs start). How would you (and your mother) feel if you were still in the midst of all those milestones, the stock market took a dive or got turbulent, all your bond allocation was in the IRA which you were trying not to touch, and you needed to sell some stock in taxable to meet cash flow needs?*

*This is where livesoft is technically correct about the behavioral finance trap. Technically, you *could* draw from the bond fund in the IRA without tax consequences by doing this:
  • raise the needed cash by selling depreciated stock in taxable (and take a capital loss that could be reported on taxes)
  • sell an equivalent amount of bonds in the IRA and buy an equivalent amount of stock in the IRA
  • Net result is as if you raised the cash by selling bonds (without an actual IRA distribution) and just moved some stock allocation from taxable to the IRA. Kind of like rearranging the furniture. But it takes a bit of psychological fortitude and financial savvy (i.e. from what you have said, it isn't a maneuver your mother could accomplish on her own without your help. As opposed to just writing a check from a savings account.)
Having written all that, maybe I've become more convinced about the validity of livesoft's argument and talked myself out of my own argument. On the other hand, sometimes I personally prefer to accept my human psychology, including its predictable irrationality about certain behavioral finance traps, and avoid some predictable stress (such as I might feel selling in a turbulent market, even if I was really just rearranging the furniture.) And the family psychology involved on whether your mother can just write a check from her savings account by herself or whether she needs to involve you to do some stock/bond sales transactions would seem to be a different issue entirely.
I have definitely been thinking about this. My initial plan to recommend for her as of now would be:

1. Open the taxable account at Vanguard and invest all of the DTE proceeds from the 2017 sale there, less what she would've received from her 2017 Q4 IRA dividend.
2. Set her DTE account to reinvest the QDIs starting in 2018 since the amounts vary...this way for 2018 projection we don't have to worry about including them when deciding how much DTE stock to sell. This is a new thought...but seems like a good idea as I'm typing this...
2. Sell another big chunk of the DTE early in 2018 (amount TBD based on projection for tax efficiency)
3. From the 2018 sale, keep $10k aside to make quarterly withdrawals for her to replace the IRA distributions and QDIs she's used to getting for 2018 in a separate savings account at Ally. This way, even though things are changing a bit behind the scenes, not much will change for her as an end game compared to what she's used to --> minimal stress.
4. Add to #3 $5k extra to cover her increased federal tax expenses and to replace the decreased (or eliminated) property tax credit she receives from her MI return for the next couple of years. Basically with this money already set aside, things will again feel no different for her in the end.
4. After getting a good handle her monthly expenses (she's asked me to help her create a budget as well because she knows I'm a meticulous budgeter, so this is on our to-do list) and take maybe 3-4 months worth of expenses ($5k? total guess...) and set aside as a dedicated emergency fund for her at Ally.
5. Would it make sense to do a CD ladder or increase savings at Ally earning 1% or something like this with some of the additional DTE proceeds? Not sure. It would be more tax efficient to put the money into equities in her taxable account and keep her portfolio near 50/50 or whatever she's comfortable with by adjusting bonds in the IRA.
5. Reinvest all of the rest into her Vanguard taxable account account into TSM

[Some of this will be slightly off the portfolio management topic, but] Important notes here:

1. From talking to her about what she uses the dividend income for, she doesn't really depend on this money to live. She uses it to pad her brick and mortar savings account for upcoming home improvements and moving expenses, and maybe takes a few hundred off the top to spend. So essentially $9k+ of the $10k from the DTE proceeds will basically end up delegated for this purpose anyway, which gives her some extra padding.

2. She is (IMO) way overestimating what her home improvement expenses needed to sell the house will cost. Over the past few years, she's already put on a new roof, fixed her minor foundation problems, and replaced all of her windows. Basically everything she has left is cosmetic stuff. Realistically, pending advice from a realtor, she needs to redo most of the floors and carpet, paint everything, clean up and invest in a bit of landscaping decor, etc. These aren't really massive high dollar items, and if my brothers and I can't do it ourselves, I literally have "guys" for EVERYTHING on this list that will help me for a great price. All of mine and my brothers friends love my mother lol.

Now, she will have other moving costs as you mentioned, and those will certainly add up. So perhaps padding even more (above and beyond the $30k) will be a good idea.

3. Last and maybe most important, when talking to her about all of this I get the feeling that she feels broke. One of the biggest things I want to accomplish when taking her through all of this is to help alleviate that. Now bear in mind I realize she's not wealthy, but is she really in that bad of shape? No debt, pushing $450k in savings, SS benefits coming in, etc. I mean...it doesn't seem like she should feel poor, yet she worries about "having the money" to pay her bills sometimes. She told me "the money doesn't feel real" unless it's in her easily accessible checking/savings account. I wish I could get her to understand that she has more money...it's just socked away in other places. Perhaps when she gets more shoved down her throat from the RMDs in a couple of years...she'll feel more comfortable. Or is there room for her to take a bit more from her investments in the shorter term? I don't know a lot about how to determine her safe withdrawal rate and so forth other than the 3-4% rule. Obviously I'll have to go over the budget and see how much room she has. But would advising her to take a little more if things feel tight be safe for her?

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Wed Nov 22, 2017 12:02 pm

guitarguy wrote:
Wed Nov 22, 2017 11:42 am
2. Set her DTE account to reinvest the QDIs starting in 2018 since the amounts vary...this way for 2018 projection we don't have to worry about including them when deciding how much DTE stock to sell. This is a new thought...but seems like a good idea as I'm typing this...
When you say "we don't have to worry about including them" do you mean "we don't have to worry about including them on her tax return"?

Unfortunately, the 1099-DIV is issued and they go on your tax return regardless of whether they are reinvested or stay in cash. The IRS doesn't care what you did with them ... just that DTE issued them.

And what were you thinking of reinvesting them in? If you meant the DTE, then you'd give yourself the complication of adding small lots that would have short term capital gains for a year. If you meant the TSM, that would probably be fine except that it would be a change from the status quo cash flow and wouldn't keep you from having to include them on your taxes. (And the TSM issues quarterly dividends as well, albeit at a lower yield than DTE.)

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Wed Nov 22, 2017 12:05 pm

cas wrote:
Wed Nov 22, 2017 12:02 pm
guitarguy wrote:
Wed Nov 22, 2017 11:42 am
2. Set her DTE account to reinvest the QDIs starting in 2018 since the amounts vary...this way for 2018 projection we don't have to worry about including them when deciding how much DTE stock to sell. This is a new thought...but seems like a good idea as I'm typing this...
When you say "we don't have to worry about including them" do you mean "we don't have to worry about including them on her tax return"?

Unfortunately, the 1099-DIV is issued and they go on your tax return regardless of whether they are reinvested or stay in cash. The IRS doesn't care what you did with them ... just that DTE issued them.

And what were you thinking of reinvesting them in? If you meant the DTE, then you'd give yourself the complication of adding small lots that would have short term capital gains for a year. If you meant the TSM, that would probably be fine except that it would be a change from the status quo cash flow and wouldn't keep you from having to include them on your taxes. (And the TSM issues quarterly dividends as well, albeit at a lower yield than DTE.)
Ahh...that makes sense. It's not an IRA! :oops:

I was thinking of it like it was in that if she doesn't get the dividends and just reinvests them like in the IRA, we don't have to worry about receiving that 1099-DIV income and then it would be simpler to calculate how much DTE to sell, but yeah that won't work that way at all and would make things much more complicated with the tax lots.

Thanks!

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Mon Nov 27, 2017 2:53 pm

Hi all, little update on this.

I finally have access to her WF online account to look at the DTE stock. Actually it's up to $150k in value now.

I see it's all in a single lot, purchased in 2012. I'll have to talk to her about if she remembers investing in this or what. 2012 is MUCH more recent than I was expecting to see here.

But, I'm unable to see the cost basis data...it just says 0.000 for purchase price. I sent a message to WF to inquire about how to get this cost basis info. Hopefully they can advise. There are no statements or anything available via her online account aside from the 1099-DIV from 2016.

Hopefully WF can advise on what the purchase price was for this stock!!?? If they can, it should be easy to calculate how much she can sell and still avoid that hump in marginal tax rate. If they can't, I wouldn't know where to turn. Research the stock value back to the date on the lot? Hmm. :confused

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by FiveK » Mon Nov 27, 2017 3:00 pm

guitarguy wrote:
Mon Nov 27, 2017 2:53 pm
Research the stock value back to the date on the lot? Hmm. :confused
Fine idea. E.g., see https://finance.yahoo.com/quote/DTE/his ... equency=1d.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Mon Nov 27, 2017 3:48 pm

Ah, so now you get an even deeper introduction to financial forensics. (I tend to my parents' portfolio and taxes. My father, who now has dementia, kept excellent records. But, still, I am very familiar with financial forensics. In fact, I am sitting in front of my computer engaging in financial forensics at this very moment. (The cost basis for some shares of a stock that were purchased via a dividend reinvestment program (DRIP) in the early 1980s.)

Is there, by any chance, an area on the WF site that shows transactions or online statements? If those types of records go back 5-6 years, you may be in luck. (Or is your mother the type of person who has old paper statements filed away somewhere?)

Let's see ... old tax returns are a gold mine for figuring out the details about something that was sold, but wouldn't do you much good for a purchase ... unless something taxable was sold that enabled the purchase, which might jog some memories on how this DTE came to be ... and the amount of proceeds from the sale would be a good guess as being the basis for the DTE that was purchased. But previously it didn't sound like your mother stores away old tax returns in an easily accessible place. (And I would think WF would have the cost basis if they handled the sale/purchase.)

Did anyone who might have left your mother an inheritance die in 2012 ... and your mother might have inherited the DTE?

A difficult case would be if there were paper DTE stock certificates (from your father's era probably) sitting in a safety deposit box, and in 2012 your mother (for some reason) was motivated to start a brokerage account and get the broker to deal with the paper certificates. In that case, the date for the cost basis might be earlier than 2012, but if your mother didn't tell WF the acquisition date and cost basis, they would have no way to populate that information in their website.

Good luck.

p.s. Yesterday there was a brief thread on "Estimating Cost Basis". ( viewtopic.php?f=1&t=233097 )
You might be mildly encouraged by Gill's response (I gather than Gill is/was an accountant):
As I have posted here before, and had my knuckles rapped by a few, assuming a basis of zero is crazy. Quite simply, as had been discussed above, you can do better than that. The IRS will accept a reasonable estimate whereas using zero is giving away too much. As I have done on many occasions with clients and others, take a shot at a reasonable estimate, document your position in your files and file the return based on that. You will come out fine.
Gill

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Mon Nov 27, 2017 4:32 pm

Something seems odd here (lucky you): all stock shares purchased after 1/1/2011 are considered "covered shares" and, upon sale, the brokerage is required to report the cost basis on the 1099-B to the IRS. (Before then, brokers were not required to report cost basis to the IRS.) (e.g. see https://ttlc.intuit.com/questions/21014 ... pital-loss )

So it is very odd that - if the stock was really purchased in 2012 - there isn't a cost basis.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 28, 2017 7:55 am

cas wrote:
Mon Nov 27, 2017 4:32 pm
Something seems odd here (lucky you): all stock shares purchased after 1/1/2011 are considered "covered shares" and, upon sale, the brokerage is required to report the cost basis on the 1099-B to the IRS. (Before then, brokers were not required to report cost basis to the IRS.) (e.g. see https://ttlc.intuit.com/questions/21014 ... pital-loss )

So it is very odd that - if the stock was really purchased in 2012 - there isn't a cost basis.
Turns out there was a 'cost basis' section I didn't see online before. But now things are just more confusing...

I see multiple dates columns...and after a quick google search on some of these terms...I'm have a LOT of trouble interpreting this table. From adjusted acquisition date of 1/1/1901 (huh??) to the date issued of almost all of her shares being March 2012...but plan dividends taking place for 2011...I am officially 100% confused.

Image

Ugh. Can anyone help me decipher this? :confused

How are there dividends with 0.000 shares, but show an adjusted acquisition price?

Then the bulk of her 1326 shares show an adjusted acquisition date of 1/1/1901...makes no sense! :annoyed
Last edited by guitarguy on Tue Nov 28, 2017 1:00 pm, edited 1 time in total.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Tue Nov 28, 2017 8:05 am

You've probably noticed this already, but your screen shot didn't post right. (It is complaining about a third party hosting service and not showing the screen shot.) I don't know how to post a screen shot on bogleheads, but I think I've seen other people discussing which third party host sites work or don't work, so maybe a search will turn up some instructions. It would very useful to see the table you are trying to post, so hopefully you can figure out how to get that posted. (nisiprius seems to post a lot of screenshots, so maybe a pm to him would get some help, if a search doesn't yield anything?)

I think I have in the back of my head that the "1/1/1901" you mention is what some broker's computers put if they don't know a date. (It really means "date not available".)

(Also ... what is the date on your mother's trust, again? Was it 2012? I'm wondering if the "2012" is entering the picture because that is when your mother created the trust account (and transferred the DTE into the trust account from some other account that was in her name). But forget that theory if 2012 isn't near the date in the trust title.)

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 28, 2017 8:44 am

cas wrote:
Tue Nov 28, 2017 8:05 am
You've probably noticed this already, but your screen shot didn't post right. (It is complaining about a third party hosting service and not showing the screen shot.) I don't know how to post a screen shot on bogleheads, but I think I've seen other people discussing which third party host sites work or don't work, so maybe a search will turn up some instructions. It would very useful to see the table you are trying to post, so hopefully you can figure out how to get that posted. (nisiprius seems to post a lot of screenshots, so maybe a pm to him would get some help, if a search doesn't yield anything?)

I think I have in the back of my head that the "1/1/1901" you mention is what some broker's computers put if they don't know a date. (It really means "date not available".)

(Also ... what is the date on your mother's trust, again? Was it 2012? I'm wondering if the "2012" is entering the picture because that is when your mother created the trust account (and transferred the DTE into the trust account from some other account that was in her name). But forget that theory if 2012 isn't near the date in the trust title.)
Darn, I'm seeing the pic just fine on my end. If anyone can comment on how to show this...it would be helpful.

Why BH's doesn't support image hosting is beyond me...most other forums do. Anyways... :wink:

I will have to look at the trust paperwork to see when it was established.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Tue Nov 28, 2017 9:13 am

On the trust date: the date I'm looking for is in the WF account name. You told us the whole WF account title at some point ... I think in your first thread where we were trying to figure out the nature of the trust. It is something like "My_mom revocable trust by my_mom DTD some_date" What is in the "some_date" position in the title for the WF account?

On the image: The thread below seems to discuss the problem I'm seeing. (I'm seeing the "Please update your account to enable 3rd party hosting" message that it mentions.) I haven't finished reading the thread, but, from what I have read, I don't think the problem is on my end.

"[Wiki] Posting images in the Bogleheads forum" viewtopic.php?t=223396
BigFoot48 has alerted me to a change in Photobucket's Terms of Use. The free account does not allow any image linking or 3rd party image hosting.

What does that mean? Anyone who has used Photobucket to link to an image will now see "Please update your account to enable 3rd party hosting" in place of your image.

The wiki page Posting images in the Bogleheads forum recommends using tinypic to host images.

Photobucket owns tinypic, I have no idea if the change in Photobucket's Terms of Use will impact tinypic. Just in case, I revised the wiki page to warn users about this possible change (under "Placing the image into a forum post").

BigFoot48 also supplied two helpful websites which suggest Photobucket alternatives. Look under "External links".

If anyone has a suggestion for updating the wiki page, please post here.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Tue Nov 28, 2017 1:01 pm

cas wrote:
Tue Nov 28, 2017 9:13 am
On the trust date: the date I'm looking for is in the WF account name. You told us the whole WF account title at some point ... I think in your first thread where we were trying to figure out the nature of the trust. It is something like "My_mom revocable trust by my_mom DTD some_date" What is in the "some_date" position in the title for the WF account?

On the image: The thread below seems to discuss the problem I'm seeing. (I'm seeing the "Please update your account to enable 3rd party hosting" message that it mentions.) I haven't finished reading the thread, but, from what I have read, I don't think the problem is on my end.

"[Wiki] Posting images in the Bogleheads forum" viewtopic.php?t=223396
BigFoot48 has alerted me to a change in Photobucket's Terms of Use. The free account does not allow any image linking or 3rd party image hosting.

What does that mean? Anyone who has used Photobucket to link to an image will now see "Please update your account to enable 3rd party hosting" in place of your image.

The wiki page Posting images in the Bogleheads forum recommends using tinypic to host images.

Photobucket owns tinypic, I have no idea if the change in Photobucket's Terms of Use will impact tinypic. Just in case, I revised the wiki page to warn users about this possible change (under "Placing the image into a forum post").

BigFoot48 also supplied two helpful websites which suggest Photobucket alternatives. Look under "External links".

If anyone has a suggestion for updating the wiki page, please post here.
I changed the image hosting to Google Drive...hopefully that works now!

The date that you reference, from her 1099-DIV statement for the WF account, says 11/15/04

Just to add to the confusion further.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Tue Nov 28, 2017 2:21 pm

(I can see the image now. Thanks.)

Unfortunately, this looks like it is going to be more complicated than I would wish for you. I think I'll break it up into multiple posts.

This are initial thoughts, and I could be wrong on any of this (anyone else with insight PLEASE chime in!), but this is how I'm interpreting things at the moment.

First surprise (to me) is that it appears that this is not a WF brokerage account, but instead the stock is held directly with DTE Energy, with Wells Fargo Shareholder Services acting as the transfer agent for DTE Energy. First hint is that DTE logo at the top of the image. Second, in a "Plan document" I'll talk about later it says
Who administers the Plan? How do I contact the Plan Administrator?


The Plan is currently administered by Wells Fargo Shareowner Services, a division of Wells Fargo Bank,
N.A. (the “Plan Administrator”). Wells Fargo Shareowner Services is also the transfer agent for DTE Energy common stock. The Plan Administrator will keep and maintain Plan records and serve as custodian for shares held in the Plan. As agent for the Plan, the Plan Administrator will hold the shares of DTE Energy common stock purchased for Plan participants. DTE Energy may change the administrator of the Plan at any time.
Source, if you want to jump ahead: https://www2.dteenergy.com/wps/wcm/conn ... 570a7d5f83

I think this means that at some time someone in your family contacted DTE Energy directly to buy their stock, rather than opening a brokerage account and working through a broker. ( I'm fuzzy on how all this works. I think it was pretty common in decades past, before discount brokerages become easily available. I know from my father's records that in the 1960s-80s he held stock either in paper certificate form or directly with the company. I remember it being a big deal when he was able to consolidate it all by opening a Merrill Lynch brokerage account in the late 1980s. And I think at that point, the discount brokerages, including Vanguard Brokerages Services, did not exist - I think they may have come into being with the internet.)

As long as the account appears to give you the online ability to enter sell orders, I suppose (I hope) this is a distinction without a difference for your purposes.

One thought I did have ... in the "Plan document" I'll talk about later ... it has this
DTE ENERGY COMPANY

We are a diversified energy company involved in the development and management of energy-related businesses and services nationwide. We are the parent holding company of The Detroit Edison Company, which we refer to as Detroit Edison; Michigan Consolidated Gas Company, which we refer to as MichCon; and other subsidiaries engaged in energy-related businesses. We were incorporated in Michigan on January 26, 1995.
Did either your mother or your father (or perhaps a grandparent) ever work for any of those companies or in any energy-related business? I'm wondering if a stock purchase plan (employee benefit) might have been involved somewhere along the line. (Or possibly a stock option grant, but I think those become more of a "thing" in the late 1990s. But I could be wrong.)

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Tue Nov 28, 2017 2:48 pm

Second ...

You (your Mom, but I'll be saying "you") *currently* have 0 shares held in physical paper certificate form.

You *currently* have 1326 shares held in electronic form (DRS, according to google is...
The Direct Registration System (“DRS”) is a service offering by the Depository Trust Company (“DTC”) which provides registered shareholders of the issuer with the option of holding their assets (shares) on the books and records of the Transfer Agent in book-entry form instead of a physical stock certificate.
The complication is that you *used* to hold these shares in "Plan" (but they were transferred out of "Plan" on March 7, 2012).

I googled a general question 'what does "Plan share balance" mean for a stock' and the second item was for a prospectus for "DTE Energy Company Dividend Reinvestment and Stock Purchase Plan" (https://www2.dteenergy.com/wps/wcm/conn ... 570a7d5f83)

I can't know for sure, but I think it is *highly* likely that this DTE Energy Dividend Reinvestment and Stock Purchase Plan is what that "Plan" word in the image is referring to and is how all the DTE Energy shares were acquired. It fits the evidence in that image.

So ... my interpretation is that for some amount of time (probably a long, long time because 1252+ shares were accumulated in this dividend reinvestment plan prior to 2011) someone in your family somehow acquired (bought? employee benefit?) some DTE stock and then was reinvesting all the dividends via a Dividend Reinvestment Plan (DRIP) into purchase of more DTE stock. And, perhaps, they were sometimes sending in additional checks to The Plan to purchase blocks of more DTE stock.

It looks like in early 2012 someone (your mother? an advisor to your mother? Did she maybe retire then?) told "The Plan" that they no longer wanted to have the dividends reinvested, but wanted them sent to her as cash.

And so, on March 7, 2012, all accumulated DTE shares were transferred out the DRIP plan, but are still held in electronic form with Wells Fargo Shareholder Services.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Tue Nov 28, 2017 2:57 pm

One more thing on "Plan":

Those 6 lines with "PLAN" in the Share Type column show a holding of 0 shares because they were transferred out into the DRS Share Type in March 2012. They *now* (after the transfer) have zero shares held in PLAN. But before the transfer, the non-zero # of shares you see in the 6 DRS lines would have been held in PLAN instead. (And no DRS lines would have appeared at all if you had looked at this same image before March 2012.)

Did that make any sense?

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by Tamarind » Tue Nov 28, 2017 3:07 pm

What do you get if you add up the "Adjusted Cost Basis" column for both pages? That would be a good and supportable minimum guess at your mom's cost basis.

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Tue Nov 28, 2017 3:42 pm

Third ... the distinction between "covered" and "non covered" shares is important.

"Non-covered shares":

Prior to 2011, individuals were expected to track their own tax lots and cost basis for stock. Once the computer age hit, if a person had a brokerage account, the brokerage would often do it for you, but they weren't required to do so, and they didn't report it to the IRS. Prior to the cheap, powerful computer age, I guess it was considered too much of a burden on brokerages and transfer agents to keep track of all those records. They would issue a statement or brokerage slip to you when you bought or sold stock shares, but you were expected to keep track of all that documentation yourself. (And if you sold stock and were audited, the gold standard is that you produced this documentation as support for the cost basis you reported for the sale..)

I'm guessing that many, many people didn't realize they had to keep all this documentation, had no idea what the cost basis was when they sold the stock, and when it came time to report the sale on their taxes fudged/intelligently guessed/pulled-out-of-thin-air the cost basis.

I'm guessing that Congress began to suspect that maybe they weren't getting all the tax receipts on stock sales that they really were entitled to.

I'm guessing that with the arrival of cheap, powerful computing, Congress decided that there was no longer any valid reason NOT to require the brokerages and transfer agents to track the cost basis and report the cost basis (as well as whether the stock had been held long-term/short-term) to the IRS when they issued a 1099-B. (If you recall, the broker will issue a 1099-B for the tax year that you sold shares of a stock.) These shares where the brokerage is required to track the cost basis and holding time are called "covered shares."

And so, on January 1, 2011, you can see in the image that Wells Fargo suddenly switched from "non-covered shares" to "covered shares."

The good news: You have all the information about cost basis and purchase date that you need for the 5 post 1/1/2011 tax lots where dividends were reinvested to buy more DTE shares.

The bad news #1: the vast majority (1252.366) of the DTE shares were purchased prior to 1/1/2011, when there was no requirement that WF track the cost basis and purchase date. In the image, WF seems to have just lumped all those "non-covered" shares together on one line, with an unknown purchase date (represented by the 01/01/1901) and an unknown cost basis (they say $0, but it is impossible that all those shares were purchased for $0, so I suspect that $0 just means "unknown."

The bad news #2: In order to accumulate 1252+ shares, it is quite possible that the DRIP (dividend repurchase program) was going on for many years. With dividends issued quarterly, that is 4 tax lots per year x unknown # of years. Plus, possibly, voluntary lump sum purchases by check. That is a large number of tax lots. That is complicated. And it seems that nobody realized they needed to be keeping the statements from the DRIP program that were being mailed to them, so that they could manually keep track of the cost basis? (I don't mean that to sound like an accusation. Many people don't realize that until they get bitten once. And I think many women of your mother's era (and now, too) were kind of expected to leave the investment knowledge to the husband, so they are really in a bad spot when they are left a widow ... and especially in your mother's situation where she was a very young widow and a sudden single parent of young children. Your mother was amazing to do as well as she did. If she missed keeping statements, it really is NOT her fault. It would be beyond amazing if she did keep them.) This is potentially a rather ugly situation.

My 3 slight glimmers of hope...

1. There is a red asterisk by "Adjusted Cost Basis." If you look further down the page, does the note signified by the red asterisk tell you anything useful?

2. What happens if you click on the "+" by that first "PLAN" line (the one for uncovered shares). Does that by any chance give you any useful information on all the tax lots purchased prior to 1/1/2011?

3. What happens if you click on that "Details" link at the end of every line, especially the lines for the PLAN and DTS non-covered shares? Does that give you any useful information on tax lots and cost basis?


Records that would help reconstruct the cost basis for the non-covered shares:

1. A folder somewhere in your mother's house that contains all the years of statements from the DRIP program. (This would be pure gold to find because it would tell you *everything* ... dividend repurchases, voluntary lump sump purchases, etc.)

2. Paper or electronic copies of past tax returns for many, many years (tax year 2010 and before) (your mother? the accountant?) that would show how many $ in DTE dividends were reported to the IRS each year. Since all these dividends were apparently re-invested, all the dividends reported each year would be counted as cost basis.

3. Contact WF and see if they can send you new copies of historical statements ... or a list of historical transactions on your account ... or if they can tell you what the cost basis for all the non-covered shares is because somewhere in their system they really did keep records of all pre 1/1/2011 transactions.

4. Access historical dividend yields from DTE or elsewhere on the internet. But historical dividend yields are available only a limited # of years on the internet, plus you don't know when the DRIP started or with how many shares, so I think it is practically impossible to recreate the $ amounts of dividends you got each year (and then the cost basis) using this method.

Anybody else have any ideas?

cas
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Tue Nov 28, 2017 4:18 pm

From the DRIP Prospectus p. 14 (Re: getting statements from prior years or asking WF to research cost basis for the non-covered shares):
Duplicate Statement & Research Fees
Current Year Duplicate Statement No Fee
Prior Year Duplicate Statement (per year) $15.00
Research Fee Call for fee information
(Good news: maybe it is possible to get old statements or ask WF to look into cost basis?
Bad news: costs $ )

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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Wed Nov 29, 2017 7:22 am

Tamarind wrote:
Tue Nov 28, 2017 3:07 pm
What do you get if you add up the "Adjusted Cost Basis" column for both pages? That would be a good and supportable minimum guess at your mom's cost basis.
3699.14

The vast majority of the shares have 0.00.

guitarguy
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Wed Nov 29, 2017 7:29 am

cas wrote:
Tue Nov 28, 2017 2:48 pm

my interpretation is that for some amount of time (probably a long, long time because 1252+ shares were accumulated in this dividend reinvestment plan prior to 2011) someone in your family somehow acquired (bought? employee benefit?) some DTE stock and then was reinvesting all the dividends via a Dividend Reinvestment Plan (DRIP) into purchase of more DTE stock. And, perhaps, they were sometimes sending in additional checks to The Plan to purchase blocks of more DTE stock.

It looks like in early 2012 someone (your mother? an advisor to your mother? Did she maybe retire then?) told "The Plan" that they no longer wanted to have the dividends reinvested, but wanted them sent to her as cash.

And so, on March 7, 2012, all accumulated DTE shares were transferred out the DRIP plan, but are still held in electronic form with Wells Fargo Shareholder Services.
This is all correct. Your interpretation is spot on!!!! Amazing to figure this all out from that table and what little info I've shared...thanks so much for all of your help on this complicated situation!!

I talked to her last night and found out some more details:

This account was started by my grandparents for my mom when she was a teenager...possibly even in grade school...she doesn't really know. In 2012, she told her accountant/advisor that she wanted more money so that's when she started taking the dividends out of both this account and her IRA as opposed to reinvesting them. This explains the tax lots shown for 2011, and then nothing after January 2012. When she had her taxes done in Feb/Mar 2012, that's when she likely made this change.

Nobody in my family worked for DTE so these are employee type benefits. It sounds like my grandparents just started an investment account for my mom...in the 60s probably...and it just has grown untouched and reinvested these dividends until 2012. Unfortunately it doesn't appear to have been managed very well over decades...

:greedy

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Tamarind
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by Tamarind » Wed Nov 29, 2017 7:58 am

Ok, so the vast majority of the cost basis will not be recorded online.

Do you know the original structure of the account, and when it was put in your mom's name? Does she have any paper documentation for their early purchases? Every date and number of shares you can document will help push the supportable cost basis up.

cas
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Wed Nov 29, 2017 8:14 am

guitarguy wrote:
Wed Nov 29, 2017 7:22 am
Tamarind wrote:
Tue Nov 28, 2017 3:07 pm
What do you get if you add up the "Adjusted Cost Basis" column for both pages? That would be a good and supportable minimum guess at your mom's cost basis.
3699.14

The vast majority of the shares have 0.00.
[Note: I was typing this at the same time you were typing what you found out about your grandparents starting this for your mother. So my "Simplifying Assumption #1" given below is already proven incorrect. But the general method might hold, so I'll leave the post]

I was just doing some extremely rough, back of the envelope guesstimating on what the general order-of-magnitude cost basis on those 1252+ non-covered shares might be.

My (extremely rough, back of the envelope, order of magnitude guesstimate, in which I might have made some massive error in judgement) is that the missing cost basis on that 1252+ shares is between $44,000 and $50,000.

How this is relevant: You said current value of the DTE is approx $150,000. A very rough guesstimate is that $44,000 to $50,000 (plus the $3699 cost basis for the covered shares) of that current value is cost basis. Cost basis has already been taxed once (before it was used to buy the shares) and should not have to be included in your taxes again. (Unless you don't mind being unnecessarily taxed on the same money twice.) If you could come up with at least minimally credible documentation of this cost basis, it would reduce the # of years it would take you to sell the DTE (as opposed to completely punting and reporting $0 cost basis on all those non-covered shares) and would reduced your mother's taxes (to the extent that the tax rate on the realized capital gains exceeds 0% in any year).

Your call on how much time (more supportable, informed, educated guesstimates) and possibly fees (e.g. to WF to get old statements or have them do research) to get at least minimally adequate documentation of this missing cost basis.

Method:

Simplifying assumption #1: Assume your Dad started this DRIP. A DRIP doesn't sound like something that your mother would have had the knowledge to start. IIRC, your Dad died in 1996. So let's assume this DRIP was in place between 1/1/1996 - 12/31/2010. (Covered shares start 1/1/2011.)

Simplfying assumption #2: Assume the 1252 shares were acquired in equal batches across that time period. (This is really wrong ... this would have been a compounding situation, where as you acquired more shares via the DRIP, you would get more dividends, which would allow you to buy a snowballing amount of shares with each DRIP purchase as time went on. So, in reality, given that DTE share prices traded within a relatively narrow range between 1996 and 2010, the purchases would have been heavily loaded more towards the end of the period. But this is just an order-of-magnitude guesstimate.)

Go to Yahoo Finance, enter DTE, go to the Chart: https://finance.yahoo.com/quote/DTE/cha ... 1dfQ%3D%3D

Set the time period on the chart to show 1/1/1996 - 12/31/2010.

Put my cursor some place on the price line and note that it shows a horizontal line. Move my cursor around and very, very roughly guesstimate the median share price for that whole time period. (i.e. when is the area under the curve above the horizontal line approximately equal to the area above the curve below the horizontal line.)

Eyeballing, it looks like the median share price for the whole time is probably somewhere between $35/share and $40/share. (Note: there were no stock splits or other corporate actions that would cause adjustments in share price during this time period.)

So...

1252 shares x $35/share = $43,820 in cost basis ... round that off to $44,000
1252 shares x $40/share = $50,080 in cost basis ... round that off to $50,000.

So ... that is a very rough, order-of-magnitude guesstimate that $44,000 to $50,000 (plus the $3699 cost basis of the covered shares) of the current $150,000 value of the DTE shares is cost basis. (And cost basis has already been taxed once and should not have to be included in your taxes again.)

guitarguy
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Wed Nov 29, 2017 8:30 am

cas wrote:
Tue Nov 28, 2017 3:42 pm
Third ... the distinction between "covered" and "non covered" shares is important.

"Non-covered shares":

Prior to 2011, individuals were expected to track their own tax lots and cost basis for stock. Once the computer age hit, if a person had a brokerage account, the brokerage would often do it for you, but they weren't required to do so, and they didn't report it to the IRS. Prior to the cheap, powerful computer age, I guess it was considered too much of a burden on brokerages and transfer agents to keep track of all those records. They would issue a statement or brokerage slip to you when you bought or sold stock shares, but you were expected to keep track of all that documentation yourself. (And if you sold stock and were audited, the gold standard is that you produced this documentation as support for the cost basis you reported for the sale..)

I'm guessing that many, many people didn't realize they had to keep all this documentation, had no idea what the cost basis was when they sold the stock, and when it came time to report the sale on their taxes fudged/intelligently guessed/pulled-out-of-thin-air the cost basis.

I'm guessing that Congress began to suspect that maybe they weren't getting all the tax receipts on stock sales that they really were entitled to.

I'm guessing that with the arrival of cheap, powerful computing, Congress decided that there was no longer any valid reason NOT to require the brokerages and transfer agents to track the cost basis and report the cost basis (as well as whether the stock had been held long-term/short-term) to the IRS when they issued a 1099-B. (If you recall, the broker will issue a 1099-B for the tax year that you sold shares of a stock.) These shares where the brokerage is required to track the cost basis and holding time are called "covered shares."

And so, on January 1, 2011, you can see in the image that Wells Fargo suddenly switched from "non-covered shares" to "covered shares."

The good news: You have all the information about cost basis and purchase date that you need for the 5 post 1/1/2011 tax lots where dividends were reinvested to buy more DTE shares.

The bad news #1: the vast majority (1252.366) of the DTE shares were purchased prior to 1/1/2011, when there was no requirement that WF track the cost basis and purchase date. In the image, WF seems to have just lumped all those "non-covered" shares together on one line, with an unknown purchase date (represented by the 01/01/1901) and an unknown cost basis (they say $0, but it is impossible that all those shares were purchased for $0, so I suspect that $0 just means "unknown."

The bad news #2: In order to accumulate 1252+ shares, it is quite possible that the DRIP (dividend repurchase program) was going on for many years. With dividends issued quarterly, that is 4 tax lots per year x unknown # of years. Plus, possibly, voluntary lump sum purchases by check. That is a large number of tax lots. That is complicated. And it seems that nobody realized they needed to be keeping the statements from the DRIP program that were being mailed to them, so that they could manually keep track of the cost basis? (I don't mean that to sound like an accusation. Many people don't realize that until they get bitten once. And I think many women of your mother's era (and now, too) were kind of expected to leave the investment knowledge to the husband, so they are really in a bad spot when they are left a widow ... and especially in your mother's situation where she was a very young widow and a sudden single parent of young children. Your mother was amazing to do as well as she did. If she missed keeping statements, it really is NOT her fault. It would be beyond amazing if she did keep them.) This is potentially a rather ugly situation.
I think I understand all of the above and this seems correct (I detailed in my above post about the origin of this account). So...now we are on the hunt for paperwork from the 1960s or whenever the account was started, up until 2011. Yikes. :shock: :(

Well...gotta start somewhere.

She has copies of her tax returns from 2002 until today. So I told her to make me a stack of 2002-2010 folders. Within this stack of paperwork, I'm fairly certain she has copies of whatever statements she would've received from WF. As I start to work with her on this I can tell since she started working with her current tax lady in 2002, she's been SUPER diligent about taking every tax related scrap of paperwork and throwing it in a box or folder and then presenting it all in a big pile when she got her taxes done.

Question: what type of statement will I be looking for here? 1099-B? And exactly what sort of data or "box" should I be looking to find as I sift through this paperwork?
cas wrote:
Tue Nov 28, 2017 3:42 pm
My 3 slight glimmers of hope...

1. There is a red asterisk by "Adjusted Cost Basis." If you look further down the page, does the note signified by the red asterisk tell you anything useful?

2. What happens if you click on the "+" by that first "PLAN" line (the one for uncovered shares). Does that by any chance give you any useful information on all the tax lots purchased prior to 1/1/2011?

3. What happens if you click on that "Details" link at the end of every line, especially the lines for the PLAN and DTS non-covered shares? Does that give you any useful information on tax lots and cost basis?
1. The asterisk notes: * Please refer to Box 3 of your 1099B for the reported cost basis on your covered shares. The Adjusted Cost Basis ($) is the result of the Adjusted Acquisition Price ($) and the Adjusted Tax Lot Shares. As the tax lot is debited the number of Adjusted Tax lot Shares is reduced.

Sentence #1 I understand and it kind of answers my question above. I suppose it'll make more sense when I actually see one of the statements.

Sentence #2 I don't understand at all.

2. If I expand the "+" for the PLAN line dated 1/1/1901, I see this:

Image

Don't really know what to make of this really.

3. No new info by clicking on details...everything is N/A and 1/1/1901 in there.
cas wrote:
Tue Nov 28, 2017 3:42 pm
Records that would help reconstruct the cost basis for the non-covered shares:

1. A folder somewhere in your mother's house that contains all the years of statements from the DRIP program. (This would be pure gold to find because it would tell you *everything* ... dividend repurchases, voluntary lump sump purchases, etc.)

2. Paper or electronic copies of past tax returns for many, many years (tax year 2010 and before) (your mother? the accountant?) that would show how many $ in DTE dividends were reported to the IRS each year. Since all these dividends were apparently re-invested, all the dividends reported each year would be counted as cost basis.

3. Contact WF and see if they can send you new copies of historical statements ... or a list of historical transactions on your account ... or if they can tell you what the cost basis for all the non-covered shares is because somewhere in their system they really did keep records of all pre 1/1/2011 transactions.

4. Access historical dividend yields from DTE or elsewhere on the internet. But historical dividend yields are available only a limited # of years on the internet, plus you don't know when the DRIP started or with how many shares, so I think it is practically impossible to recreate the $ amounts of dividends you got each year (and then the cost basis) using this method.

Anybody else have any ideas?
I think I will start by sorting through her tax returns from 2002-2010.

I also found this table. Unfortunately it only goes back to 2006:

Image

Will these amounts be helpful? Can I just add all these up (talking about the ones that say reinvested and not paid to her by check starting in 2012), subtract that amount from the total amount she nets from the sale, and then that's her LTCG taxable income to report?

Last question...do I need to worry about WHICH SHARES are actually selling? I mean when I go to the sell area, everything looks like it's lumped into one single lot...so what the heck?

Image
Last edited by guitarguy on Wed Nov 29, 2017 9:50 am, edited 1 time in total.

cas
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Wed Nov 29, 2017 9:04 am

guitarguy wrote:
Wed Nov 29, 2017 7:29 am

This account was started by my grandparents for my mom when she was a teenager...possibly even in grade school...she doesn't really know. . . . It sounds like my grandparents just started an investment account for my mom...in the 60s probably...and it just has grown untouched and reinvested these dividends until 2012. Unfortunately it doesn't appear to have been managed very well over decades...
[Note: we've been typing at the same time. I haven't read several of your recent posts, so if it seems like I'm ignoring something important you said in this post ... probably because I haven't seen it yet.]

From what I can tell from my parents' records, this would have been considered a really savvy, loving thing to do in that era. My grandparents and parents did something similar for me as a college fund. There were no 529s or other tax-advantaged college plans back then. And education was really important to them. The mutual fund industry was small and expensive (no Vanguard, no index funds). Brokers charged high fees. A DRIP in a blue chip stock actually seems to be an excellent decision given the circumstances of the era.

Anyway ... one way to proceed ... if you do want to proceed to try to document a cost basis ... would be this (other people PLEASE chime in on whether this seems a plausible way forward. Or if you have a better idea.) (Note: having gotten to the end of my post, I started think this is an awful lot of work with the distinct possibility of ending up not jiving with the ending amount of 1252 non-covered shares.)

(Note: there is always the option of at least asking WF how far their records go back. Given computer technology at the time, even they may not have good records. But after writing the stuff below, I began to think that paying for some/all old statements or some amount of research might actually be a good deal.
)

It looks like that Yahoo chart goes back to 1/1/1970.

Assume that some small # of shares was in the account on 1/1/1970. Make a guess as to what value gift your Mom's parents might have started with ($100? $500? A dollar was worth a lot more then. The economy went belly up sometime around then, so money may have been scarce.) Look up on the chart (or Yahoo has a historical stock price table that you can put dates in ... google "historical stock price DTE") what the low price for the day was on that day. (Or you could probably even choose the midway between high and low price. Maybe. This is not tax advice.) Divide the $ amount by that stock price to come up with a # of shares. (Make sure to set up your spreadsheet is set up so you can adjust this later on.)

Notice that on the chart, a "D" marks every dividend distribution. If you hover over the "D" it tells you how many $/share the dividend was. It also shows the high and low stock price for that day. (Again, choose the low price for the day for something the IRS probably couldn't argue about. But they might not argue about the price half way in between high and low either. I don't know. Google might know.)

Have a line in your spreadsheet for each dividend distribution. (yes, 4 dividends per year x your mother's lifetime is going to generate a lot of lines and be quite a project. You'll probably have a much greater appreciation of the collapsing & recovering of stock prices through various crises, plus how dollar cost averaging can compound by the end, if you find that any silver lining.)

Something like (off the top of my head)

Purchase Date .... Starting # shares .... dividend $/share .... total dividend .... low (or midway) share price for day ... # shares purchased* .... ending # shares.

# shares purchased = total dividend/low(midway) price.

end # shares =starting # shares + shares purchased with that dividend payment. This becomes the next line's starting # of shares.

(Eventually, you may want Sale Date, Sale price, Realized Capital Gain columns so you can can report the sale of the tax lots properly on your taxes. The IRS lets you lump a bunch of tax lot sales (all long term) under one "various" date, so you won't have to report each and every tax lot on the tax return, but you will need your spreadsheet to tell you the total cost basis for all the "various" lots you sell one a single date. )

Keep adjusting that chart timerange so you can see the "D"s and get all the way from 1970 to 2010. Fill out a line for each dividend distribution. (Or see if that downloadable table version can be induced to do somthing similar. That would save you a lot of typing.)

When you get to the end, see if you come out anywhere near 1252 shares. If not, you may need to adjust the starting share #. (e.g. Maybe your parents gave a $100 or $1000 gift rather than a $500). Or just plain start adjusting the very beginning starting share # until something near 1252 results at the end of 2010.

Or ... and this would be really sad after so much work ... if you just can't get any plausible starting amount to get you to the vicinity of 1252 shares after all those years, maybe all this work will turn out to be for naught. That kind of scares me.

cas
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by cas » Wed Nov 29, 2017 9:45 am

I need to go somewhere, but 2 quick notes:

First...

That "Dividend Proceeds" table that goes back to 1996 is PURE GOLD! That "Gross Amount" (see note) column shows the cost basis for every tax lot back to 1996!

And, because this a compounding situation - every quarterly dividend payout buys you more shares which increases your dividend amount of the next dividend quarterly payout - the vast majority of you dividend payouts (and therefore your cost basis) would have occurred in the most recent 20ish years rather than in the more distant 20ish years.

Add it all up and see what you get. You might well decide that you've absolutely documented enough cost basis that it just isn't worth the time and effort to try to chase after the cost basis that was accumulated in the '60s - '80s. But add it all up and let us know what you have.

Note: I'm pretty sure that the prospectus for "The Plan" mentioned a $1 "administrative fee" to do the repurchase. I'm guessing that is the $1 difference between "Gross Amount" and "Net Amount." I'm pretty sure the IRS lets you include such fees in the cost basis (which means you would use Gross Amount as the basis) ... see IRS Publication 551 "Basis of Assets" to confirm ... https://www.irs.gov/pub/irs-pdf/p551.pdf

Second...

On the "Fees and Timing" table ... the fact that only 437 shares are listed as available for sale online seems odd to me. Click on that "?" to see if that provides enlightenment. Or maybe call WF if it doesn't, and try to figure out how you would sell the rest of the shares.

guitarguy
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Re: Help with mom's portfolio plan [taxes, SS, & selling $100k of single stock]

Post by guitarguy » Wed Nov 29, 2017 9:57 am

cas wrote:
Wed Nov 29, 2017 9:45 am
I need to go somewhere, but 2 quick notes:

First...

That "Dividend Proceeds" table that goes back to 1996 is PURE GOLD! That "Gross Amount" (see note) column shows the cost basis for every tax lot back to 1996!

And, because this a compounding situation - every quarterly dividend payout buys you more shares which increases your dividend amount of the next dividend quarterly payout - the vast majority of you dividend payouts (and therefore your cost basis) would have occurred in the most recent 20ish years rather than in the more distant 20ish years.

Add it all up and see what you get. You might well decide that you've absolutely documented enough cost basis that it just isn't worth the time and effort to try to chase after the cost basis that was accumulated in the '60s - '80s. But add it all up and let us know what you have.

Note: I'm pretty sure that the prospectus for "The Plan" mentioned a $1 "administrative fee" to do the repurchase. I'm guessing that is the $1 difference between "Gross Amount" and "Net Amount." I'm pretty sure the IRS lets you include such fees in the cost basis (which means you would use Gross Amount as the basis) ... see IRS Publication 551 "Basis of Assets" to confirm ... https://www.irs.gov/pub/irs-pdf/p551.pdf

Second...

On the "Fees and Timing" table ... the fact that only 437 shares are listed as available for sale online seems odd to me. Click on that "?" to see if that provides enlightenment. Or maybe call WF if it doesn't, and try to figure out how you would sell the rest of the shares.
I goofed...it only goes back to 2006 :(

But at least there's 5 years of info there...better than nothing.

The share limit is because it says above that screenshot there's a $50k limit for online transactions...those 437 shares add up to $50k. It reads like it's a limit for a single transaction.

I will try to use some of these techniques and run some numbers and see what I can come up with here. I'd say that documenting it somehow that makes logical sense will prove fine if she were to be audited, especially since the numbers will float her around the 0% range anyway. I can estimate conservatively and she can sell off in chunks small enough for it to make sense.

I guess regarding actually going forward with the sale, my only question is since all the shares are listed in one lot on the sale screen (see image above), how do I determine which shares are actually being sold? Shouldn't I be able to see all the different lots, especially for the covered shares purchased via the dividends after 2011?

EDIT: really appreciate all the help and time cas! :beer

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