Re: Divs and Cap Gains are killing me - personal

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ps56k
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Re: Divs and Cap Gains are killing me - personal

Post by ps56k »

Well - interesting double edge sword - Divs & Cap Gains - now at tax time...
This is for my normal investment accounts - not my IRA (yeah, did it backwards)

Years ago - I thought the concept of the Div Aristocrats of stocks made sense...
buy solid performing company stocks with good div payout.
I was thinking of the future, and drawing on the Divs in retirement.

Now however - it's time to pay the piper - we retired very early -
My stocks at Schwab are doing well... with my Divs going to my cash account.
Apple, Cisco, McD, Qualcomm, Starbucks, Amazon, Nvidia, etc

My Vanguard mutual funds are also doing well - with re-investment of Cap Gains & Divs -
Windsor, Wellesley, Total Stock, etc...

My T.Rowe specialty mutual funds from years ago are also doing well - with re-invested Cap Gains & Divs -
Health Sciences, Media, New Horizons, New Asia

SO - it's interesting to have Schwab Div income producing stocks - and just take the cash,
along with Cap Gain mutual funds and re-invest for more shares.

I also have been selling a little of my high market value stocks - a little slice here and there,
but the Cap Gains on the sale of these stocks are generating lots of taxes.

BUT - you then have to pay to play - and last year - for me - it was an extra $10k owed in taxes.

Does it still make sense to have solid div paying stocks, for cash,
and mutual funds to grow - but have to pay more taxes on the higher cap gains ?

At this point - the Cap Gains and Divs are really killing me -
What should I do - any suggestions ????
Last edited by ps56k on Tue Feb 04, 2020 9:43 am, edited 1 time in total.
jebmke
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Re: Divs and Cap Gains are killing me

Post by jebmke »

I try to avoid dividends and capital gains, all other things equal. At this point, your options may be limited to selling them (take the gain and move on), keep them and keep paying taxes or donate them to charity and take the deduction (make sure the gains are long term).
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livesoft
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Re: Divs and Cap Gains are killing me

Post by livesoft »

Your taxes are rarely 100% of the dividends that you get.

You seem to be a sophisticated investor. So you either pay taxes or sell the offending shares or donate lots to charity. What did I miss?
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chevca
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Re: Divs and Cap Gains are killing me

Post by chevca »

Killing you?? Yeah, it sucks to make money. :confused
dbr
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Re: Divs and Cap Gains are killing me

Post by dbr »

You are now committed to dividend paying investments that have a high tax bill compared to investments of similar return with less of the return in dividends. To escape this you would have to sell those investments and realize a taxable gain but possibly reduce future tax bills. You would have to add up the tax costs over some range of future years and find out if it is worth it to change over the investments now. The usual thing is to first attack those holdings that have the least unrealized gain.
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Re: Divs and Cap Gains are killing me

Post by Ace1 »

I thought the point of investing was to make income and for growth of the investment.
Paying taxes means you are making money.... what could be wrong with that?
dbr
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Re: Divs and Cap Gains are killing me

Post by dbr »

Ace1 wrote: Mon Nov 27, 2017 7:03 pm I thought the point of investing was to make income and for growth of the investment.
Paying taxes means you are making money.... what could be wrong with that?
It is inferior to making money and not paying taxes.
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Leif
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Re: Divs and Cap Gains are killing me

Post by Leif »

I went with tax efficient funds in taxable. That includes TSM and ITSM (EAFE) funds. Asset location matters.

Your gains are baked in at this point. My only suggestion would be to sell them if they take a significant drop, and replace them with efficient (low turnover) funds, such as tax managed and broad based index funds. If you have any stocks/funds under water you could sell them as well to offset some gains.
Last edited by Leif on Mon Nov 27, 2017 7:11 pm, edited 1 time in total.
itstoomuch
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Re: Divs and Cap Gains are killing me

Post by itstoomuch »

You're not dead yet. The Divs and CapGains are still keeping you interested and alive. :D
Our taxable Discretionary is no longer very big. I started liquidating 2015, to cash in an anticipation for a home purchase. Probably gave up a sum in divs and LTCG for cash. Still holding 40% cash in Discretionary IRA & Taxables.
All choices have consequences and premiums.
I am looking at alternatives but our situation is minor as compared to your positions.
YMMV :beer

BTW, the taxes on cap gains and divs are far smaller than the taxes on IRA distributions/withdrawals. :oops: :moneybag
Last edited by itstoomuch on Mon Nov 27, 2017 7:15 pm, edited 4 times in total.
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tesuzuki2002
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Re: Divs and Cap Gains are killing me

Post by tesuzuki2002 »

ps56k wrote: Mon Nov 27, 2017 6:46 pm Well - interesting double edge sword - Divs & Cap Gains - now at tax time...
This is for my normal investment accounts - not my IRA (yeah, did it backwards)

Years ago - I thought the concept of the Div Aristocrats of stocks made sense...
buy solid performing company stocks with good div payout.
I was thinking of the future, and drawing on the Divs in retirement.

Now however - it's time to pay the piper - we retired very early -
My stocks at Schwab are doing well... with my Divs going to my cash account.
Apple, Cisco, McD, Qualcomm, Starbucks, Amazon, Nvidia, etc

My Vanguard mutual funds are also doing well - with re-investment of Cap Gains & Divs -
Windsor, Wellesley, Total Stock, etc...

My T.Rowe specialty mutual funds from years ago are also doing well - with re-invested Cap Gains & Divs -
Health Sciences, Media, New Horizons, New Asia

SO - it's interesting to have Schwab Div income producing stocks - and just take the cash,
along with Cap Gain mutual funds and re-invest for more shares.

I also have been selling a little of my high market value stocks - a little slice here and there,
but the Cap Gains on the sale of these stocks are generating lots of taxes.

BUT - you then have to pay to play - and last year - for me - it was an extra $10k owed in taxes.

Does it still make sense to have solid div paying stocks, for cash,
and mutual funds to grow - but have to pay more taxes on the higher cap gains ?

At this point - the Cap Gains and Divs are really killing me -
What should I do - any suggestions ????

Are you realizing more than $50K in Div and Cap Gain annually? If so then your plan worked and you are making some great passive income. If you are not... why are your taxes so high?
NotWhoYouThink
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Re: Divs and Cap Gains are killing me

Post by NotWhoYouThink »

What are you doing with the dividends? Reinvesting them in the same funds, or investing them in more efficient funds, or spending them?
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Artsdoctor
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Re: Divs and Cap Gains are killing me

Post by Artsdoctor »

This is an age-old lament, so relax. All is not lost.

First, I take it you're not reinvesting the dividends. If you haven't done it already, turn off the automatic reinvestment, if applicable.

Second, you never have to do anything all at once so don't think of this as an all-or-none endeavor.

If you've already committed to getting rid of your individual dividend-paying stocks, there are several things you can do.

The easy part would be to donate some of the highest appreciated shares. If you haven't already opened a donor advised fund, think about this option.

Then, you'll have to plan your sales. Yes, you'll generate capital gains, but you won't necessarily have to pay for that. If you have anything that has lost money and you have a capital loss on anything, you can use that loss to offset the capital gains. If you don't have losses, you probably will at some point; you can then sell losers (perhaps tax-loss harvesting when there's an opportunity) and then gradually off-load those stocks.

You can use a tax software program to help you out. If you wind up generating capital gains because of sales, then at least figure out how much it will cost you. I'm sure you know the difference between long-term and short-term gains; you'd want to avoid the latter unless you have the losses to offset the gains.
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Re: Divs and Cap Gains are killing me

Post by Tyler Aspect »

One super secret trick for a retired investor is to do a growth index / value index split. You would hold a growth stock index fund in your taxable account, with equal amount of value stock index hold in the tax deferred account. The purpose of this structure would be to reduce the amount of taxable dividend.

However, paying taxes means you are making money, which is a good thing™.
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Globalviewer58
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Re: Divs and Cap Gains are killing me

Post by Globalviewer58 »

Are you taking time to harvest tax losses? This is an annual effort to take advantage of any paper losses to offset investment income.
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Re: Divs and Cap Gains are killing me

Post by Toons »

Would you rather not make money and not have to pay taxes?
:happy
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Re: Divs and Cap Gains are killing me

Post by dbr »

Toons wrote: Mon Nov 27, 2017 7:37 pm Would you rather not make money and not have to pay taxes?
:happy
Having excessive taxable income and making money are two different things.
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Re: Divs and Cap Gains are killing me

Post by indexfundfan »

Some typical distribution yields

Biotech ETF 0.25%
US LargeCap Growth 1.2%
US SmallCap 1.3%
US Total Market 1.8%
US LargeCap Blend 1.9%
EAFE, Emerging Markets >2%

Over the past few years, I have been gravitating towards assets with low dividend distributions in the taxable account so that MAGI can be minimized. In the end, it's the total return that counts, not just the dividends.
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Re: Divs and Cap Gains are killing me

Post by Monster99 »

Take a look at the estimated capital gain for Dodge & Cox stock fund - December distribution of over $8 bucks a share .....
TJSI
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Re: Divs and Cap Gains are killing me

Post by TJSI »

Losses hurt worse.

Try to arrange your investments to minimize taxes as best you can. Unfortunately, taxes are a fact of life.
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Re: Divs and Cap Gains are killing me

Post by WildBill »

Howdy

You are not getting much sympathy here :P

Here is a thought that might comfort you - your heirs will get the stocks at a stepped up basis and they will be able to sell them without this despicable thing called a capital gains tax. 8-)

One of my favorite sayings from my friend in real estate - “You make your money when you die”

Happy investing

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Hawaiishrimp
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Re: Divs and Cap Gains are killing me

Post by Hawaiishrimp »

Well, stop making money. That'll fix it.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
avalpert
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Re: Divs and Cap Gains are killing me

Post by avalpert »

At this point your embedded gains are probably too high for it to make sense to shift around your portfolio.

But it is a good illustration of why investing for high yield early on is mistake that costs you for a long time - tax efficiency matters.
dbr
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Re: Divs and Cap Gains are killing me

Post by dbr »

Hawaiishrimp wrote: Mon Nov 27, 2017 11:28 pm Well, stop making money. That'll fix it.
But the problem with dividend investing in this case is that you can't stop making (taxable) money.
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goingup
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Re: Divs and Cap Gains are killing me

Post by goingup »

ps56k-
It sounds like you have substantial taxable holdings which produce lots of dividends. You retired early, but don't need all the dividend/capital gains distributions to cover expenses, so you're reinvesting much of that income. If you truly want fewer of these tax-inefficient holdings then:

Don't reinvest dividends in funds like Wellesley, Windsor, Health Sciences, etc. Take that cash and spend it, or purchase Total Stock or muni bonds.
Donate the most highly appreciated shares.
Sell any losers.
Sell newer shares that have been held over one year.

Not clear from your post if you really are looking for help or are just resigned to the situation.
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Re: Divs and Cap Gains are killing me

Post by SGM »

An individual can gift up to $14k to another individual in 2017. The limit is set to rise to $15k in 2018. Maybe 529s will be of help or starting children in Roth IRAs.

I acknowledge the necessity of paying taxes, but I don't think the majority of it is money well spent. I would rather spend my money on goods and services that add value.
NotWhoYouThink
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Re: Divs and Cap Gains are killing me

Post by NotWhoYouThink »

goingup wrote: Tue Nov 28, 2017 9:48 am ps56k-
It sounds like you have substantial taxable holdings which produce lots of dividends. You retired early, but don't need all the dividend/capital gains distributions to cover expenses, so you're reinvesting much of that income. If you truly want fewer of these tax-inefficient holdings then:

Don't reinvest dividends in funds like Wellesley, Windsor, Health Sciences, etc. Take that cash and spend it, or purchase Total Stock or muni bonds.
Donate the most highly appreciated shares.
Sell any losers.
Sell newer shares that have been held over one year.

Not clear from your post if you really are looking for help or are just resigned to the situation.
Agree that more info here would make this thread more actionable.
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Re: Divs and Cap Gains are killing me

Post by Artsdoctor »

dbr wrote: Tue Nov 28, 2017 8:58 am
Hawaiishrimp wrote: Mon Nov 27, 2017 11:28 pm Well, stop making money. That'll fix it.
But the problem with dividend investing in this case is that you can't stop making (taxable) money.
Agreed. I'm surprised so many people are giving the OP a bit of attitude. Paying more in tax doesn't necessarily connote being successful financially. At the end of the day, it's not how much you make, it's how much you keep. You're going to care about your AFTER-tax income, not total income. If you're making more because of dividends and capital gains, but you're paying more in taxes because of it, you're going to want to compare the after-tax gain with a more tax-efficient strategy; you'll probably find that your after-tax return is better using the more tax-efficient strategy.
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Re: Divs and Cap Gains are killing me

Post by randomguy »

ps56k wrote: Mon Nov 27, 2017 6:46 pm

Does it still make sense to have solid div paying stocks, for cash,
and mutual funds to grow - but have to pay more taxes on the higher cap gains ?

At this point - the Cap Gains and Divs are really killing me -
What should I do - any suggestions ????
Owning dividend stocks never made sense.:) The story sounds great byt when you run the math, you don't do any better.

Without knowing your situation it is hard to suggest a solution. But realistically when you are making 100k+ or so, you should be expecting to pay some taxes. Expecting not to pay taxes isn't realistic. You can work to minimize them. Any dividend that you invest versus spend is tax drag so you should work to eliminate them. But as always don't let taxes tax over. Your goal is to maximize your money, not minimize your taxes.
dbr
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Re: Divs and Cap Gains are killing me

Post by dbr »

This whole thing is a reminder that one needs to be careful in structuring taxable investment selections because the tax cost of changing things can be a serious problem.
chevca
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Re: Divs and Cap Gains are killing me

Post by chevca »

Artsdoctor wrote: Tue Nov 28, 2017 10:21 am
dbr wrote: Tue Nov 28, 2017 8:58 am
Hawaiishrimp wrote: Mon Nov 27, 2017 11:28 pm Well, stop making money. That'll fix it.
But the problem with dividend investing in this case is that you can't stop making (taxable) money.
Agreed. I'm surprised so many people are giving the OP a bit of attitude. Paying more in tax doesn't necessarily connote being successful financially.
Um, it kind of does mean just that. The millions of folks out there not paying any dividend or capital gains taxes because they don't have any might disagree with you about the successful part. I wouldn't mind having the terrible problem of having to pay these taxes.

I agree with, not enough info on what the OP posted for. Were they looking for advice on how to better the tax situation? In that case, the one's helping and defending that way are doing good. Were they just posting as, whoa is me I have to pay taxes because I made money? In that case, the one's giving a bit of attitude are doing good. IMO
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Re: Divs and Cap Gains are killing me

Post by Artsdoctor »

^ Chevca,

Actually, in order to understand the original post, you'll need to understand dividends, principal, return, and taxes. I know that you'd think it's obvious, but it's really not.

A lot of people don't realize that when equity dividends are paid, the NAV (or price) decreases by the amount of the dividend. So you're looking at a forced dividend that you're probably going to pay taxes on, with the concomitant decreased NAV. If you're investing in high-dividend paying stocks in your taxable account, you're throwing off dividends but the price is decreasing by that amount. It is true that some dividends are taxed at a preferable rate (the qualified dividend rate) although some are not. But as the investor, you're not going to have any say in the matter; if you're going to sell your stock, on the other hand, you ultimately will control when you do it which some investors find attractive.

So in reality, one may find themselves paying taxes needlessly when high dividends are "forced" on them. Probably the easiest example for you to understand this more clearly is to take a look at some of the actively managed equity mutual funds. You can easily find yourself having dividends and capital gains distributions in the 2-5% range that are paid out--even during a bear market when you've seen your (unsold) principal decrease markedly. You might think that you've made money, but in reality, you've wasted it.

Or, if you're still having trouble with the concept, think about bonds. If my federal and state marginal investment tax rates are 50% combined, which would you rather have: a taxable bond fund paying 3% or a municipal bond fund paying 2.5%? You can clearly see that the taxable bond fund has paid more, but the investor in the municipal bond fund has kept more.

So no, just because you're stock or fund is throwing off more dividends doesn't mean that you're coming out ahead in the end.
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Re: Divs and Cap Gains are killing me

Post by Admiral »

Artsdoctor wrote: Tue Nov 28, 2017 12:37 pm ^ Chevca,

Actually, in order to understand the original post, you'll need to understand dividends, principal, return, and taxes. I know that you'd think it's obvious, but it's really not.

A lot of people don't realize that when equity dividends are paid, the NAV (or price) decreases by the amount of the dividend. So you're looking at a forced dividend that you're probably going to pay taxes on, with the concomitant decreased NAV. If you're investing in high-dividend paying stocks in your taxable account, you're throwing off dividends but the price is decreasing by that amount. It is true that some dividends are taxed at a preferable rate (the qualified dividend rate) although some are not. But as the investor, you're not going to have any say in the matter; if you're going to sell your stock, on the other hand, you ultimately will control when you do it which some investors find attractive.

So in reality, one may find themselves paying taxes needlessly when high dividends are "forced" on them. Probably the easiest example for you to understand this more clearly is to take a look at some of the actively managed equity mutual funds. You can easily find yourself having dividends and capital gains distributions in the 2-5% range that are paid out--even during a bear market when you've seen your (unsold) principal decrease markedly. You might think that you've made money, but in reality, you've wasted it.

Or, if you're still having trouble with the concept, think about bonds. If my federal and state marginal investment tax rates are 50% combined, which would you rather have: a taxable bond fund paying 3% or a municipal bond fund paying 2.5%? You can clearly see that the taxable bond fund has paid more, but the investor in the municipal bond fund has kept more.

So no, just because you're stock or fund is throwing off more dividends doesn't mean that you're coming out ahead in the end.
Hence the Boglehead "total return, low ER, low tax drag" philosophy. Regular readers of the forum should know the philosophy, newer readers may not know it or understand it.
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Re: Divs and Cap Gains are killing me

Post by Artsdoctor »

^ Yes, and I was trying to avoid dredging up the argument. However, the concept of differentiating pre-tax return from post-tax return is hopefully something that most would easily understand.
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Re: Divs and Cap Gains are killing me

Post by Da5id »

Lots of advice up thread, but also consider Vanguard cap gains are coming soon, mostly Dec 15. According to
https://investornews.vanguard/upcoming- ... formation/
Windsor will have a 2.85% cap gains distribution
Windsor II will have 6.42%.
Wellington will have 3.79%

Scanning the list, some are even higher (though not owned by you)
Explorer will have 11.47%
Selected Value will have 8.65%

I think you need to look at the big picture and continue slowly winding these down, balancing realizing capital gains vs the history of annual distributions. For those who are in buying mode, the above are better kept in tax deferred/tax free accounts IMHO. That becomes even more true if you are trying to manage income for ACA subsidies.
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Re: Divs and Cap Gains are killing me

Post by Admiral »

Artsdoctor wrote: Tue Nov 28, 2017 12:51 pm ^ Yes, and I was trying to avoid dredging up the argument. However, the concept of differentiating pre-tax return from post-tax return is hopefully something that most would easily understand.
Consider it dredged! I also think that for many investors, they pay little attention to tax efficiency and ERs as long as they are making money. They don't look at their investments (as a Bh would) and say, "I've done really well. But could I do better?" My parents (in their 80s) have been with M-S since it was Dean Witter. They've done very well with M-S's high ER/high fee mutual funds, and are happy with their portfolio. When I try to convince them they could do better at Vanguard (if only with lower expenses), they just don't listen. They've done well, they don't want to bother changing their accounts, and that's it. End of conversation.

Their broker just took them out to dinner. There's a bad sign...
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Re: Divs and Cap Gains are killing me

Post by bhsince87 »

randomguy wrote: Tue Nov 28, 2017 10:23 am

Owning dividend stocks never made sense.:) The story sounds great byt when you run the math, you don't do any better.

Actually, owning dividend stocks and funds made perfect sense, up until 10-15 years ago.

Many folks don't realize (or they forget) how big of a hit brokers fees used to be. I remember paying $25 a trade plus 1%, but I think they were even higher in the past.

Dividends and DRIPS were the best way to avoid these fees.

But now that many trades are free (or almost free), dividends don't make as much sense as they used to.
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Re: Divs and Cap Gains are killing me

Post by itstoomuch »

Delete
Last edited by itstoomuch on Tue Nov 28, 2017 1:26 pm, edited 1 time in total.
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Re: Divs and Cap Gains are killing me

Post by itstoomuch »

OP, a few of possibilities.
Resign yourself and graciously accept the LTCG tax @ -10 pts below your marginal tax rate :happy .
Hold and not sell to avoid incurring LTCG :wink: .
Own what doesn't force a LTCG :oops:
Buy more of, to enable a later sell using LIFO ( May change if 2017 tax law changes) :shock:
Buy something else that has a big alpha and get the possibility of offsetting gains and losses. You may also get lucky and get another winner. :greedy
Do options against the holdings to protect gains 8-) . TDAmeritrade has free seminars. Seattle, Dec 2. Which is my excuse to visit son. It's just 200 miles for me and I am using an Amtrak voucher from a cancelled trip to Seattle. We saw him for thanksgiving.
Have so much wealth and be comfortable in your tax bracket :moneybag .
Ymmv
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chevca
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Re: Divs and Cap Gains are killing me

Post by chevca »

Artsdoctor wrote: Tue Nov 28, 2017 12:37 pm ^ Chevca,

Actually, in order to understand the original post, you'll need to understand dividends, principal, return, and taxes. I know that you'd think it's obvious, but it's really not.

A lot of people don't realize that when equity dividends are paid, the NAV (or price) decreases by the amount of the dividend. So you're looking at a forced dividend that you're probably going to pay taxes on, with the concomitant decreased NAV. If you're investing in high-dividend paying stocks in your taxable account, you're throwing off dividends but the price is decreasing by that amount. It is true that some dividends are taxed at a preferable rate (the qualified dividend rate) although some are not. But as the investor, you're not going to have any say in the matter; if you're going to sell your stock, on the other hand, you ultimately will control when you do it which some investors find attractive.

So in reality, one may find themselves paying taxes needlessly when high dividends are "forced" on them. Probably the easiest example for you to understand this more clearly is to take a look at some of the actively managed equity mutual funds. You can easily find yourself having dividends and capital gains distributions in the 2-5% range that are paid out--even during a bear market when you've seen your (unsold) principal decrease markedly. You might think that you've made money, but in reality, you've wasted it.

Or, if you're still having trouble with the concept, think about bonds. If my federal and state marginal investment tax rates are 50% combined, which would you rather have: a taxable bond fund paying 3% or a municipal bond fund paying 2.5%? You can clearly see that the taxable bond fund has paid more, but the investor in the municipal bond fund has kept more.

So no, just because you're stock or fund is throwing off more dividends doesn't mean that you're coming out ahead in the end.
Thanks for the long explanation, but I get the concept.

I never said it was ideal. But, it's certainly not the worst thing in the world, right? If one doesn't have to sell during the bear market, collecting 2-5% dividends doesn't seem all that bad.
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whodidntante
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Re: Divs and Cap Gains are killing me

Post by whodidntante »

Dividends are a non elective, taxable distribution. Dividends are not a source of return. Were you thinking value? I see no reason to favor dividend stocks.
renue74
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Re: Divs and Cap Gains are killing me

Post by renue74 »

livesoft wrote: Mon Nov 27, 2017 6:52 pm Your taxes are rarely 100% of the dividends that you get.

You seem to be a sophisticated investor. So you either pay taxes or sell the offending shares or donate lots to charity. What did I miss?
1+

I seem to remember complaining about paying taxes on $55K of dividends/cap gains about 2 years ago and livesoft set me straight. I bit the bullet and realigned my taxable account with tax efficient funds. It made a difference.
randomguy
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Re: Divs and Cap Gains are killing me

Post by randomguy »

bhsince87 wrote: Tue Nov 28, 2017 1:05 pm
randomguy wrote: Tue Nov 28, 2017 10:23 am

Owning dividend stocks never made sense.:) The story sounds great byt when you run the math, you don't do any better.

Actually, owning dividend stocks and funds made perfect sense, up until 10-15 years ago.

Many folks don't realize (or they forget) how big of a hit brokers fees used to be. I remember paying $25 a trade plus 1%, but I think they were even higher in the past.

Dividends and DRIPS were the best way to avoid these fees.

But now that many trades are free (or almost free), dividends don't make as much sense as they used to.
Vanguards S&P 500 fund has been available for about 40 years now. The commissions on it have always been quite reasonable.:)
bhsince87
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Re: Divs and Cap Gains are killing me

Post by bhsince87 »

randomguy wrote: Tue Nov 28, 2017 1:58 pm
bhsince87 wrote: Tue Nov 28, 2017 1:05 pm
randomguy wrote: Tue Nov 28, 2017 10:23 am

Owning dividend stocks never made sense.:) The story sounds great byt when you run the math, you don't do any better.

Actually, owning dividend stocks and funds made perfect sense, up until 10-15 years ago.

Many folks don't realize (or they forget) how big of a hit brokers fees used to be. I remember paying $25 a trade plus 1%, but I think they were even higher in the past.

Dividends and DRIPS were the best way to avoid these fees.

But now that many trades are free (or almost free), dividends don't make as much sense as they used to.
Vanguards S&P 500 fund has been available for about 40 years now. The commissions on it have always been quite reasonable.:)
Good point!
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams
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Electron
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Re: Divs and Cap Gains are killing me

Post by Electron »

Identify higher turnover actively managed funds in taxable accounts that make large distributions. Think about a plan to move those assets to more tax efficient funds in the future. I have done that with several mutual funds in the past and taken advantage of market declines when they present themselves.

In the meantime, take all distributions in those funds as cash and reinvest in more tax efficient mutual funds. Also identify your current capital gains tax exposure should you decide to sell some or all of the shares.
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House Blend
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Re: Divs and Cap Gains are killing me

Post by House Blend »

bhsince87 wrote: Tue Nov 28, 2017 1:05 pm
randomguy wrote: Tue Nov 28, 2017 10:23 am

Owning dividend stocks never made sense.:) The story sounds great byt when you run the math, you don't do any better.

Actually, owning dividend stocks and funds made perfect sense, up until 10-15 years ago.

Many folks don't realize (or they forget) how big of a hit brokers fees used to be. I remember paying $25 a trade plus 1%, but I think they were even higher in the past.

Dividends and DRIPS were the best way to avoid these fees.
Fifteen-plus years ago, all dividends were taxed as ordinary income.
And most taxpayers paid 20% Federal on LTCG.

In 2002, I'd rather pay a 1% fee on a sale of $10K worth of shares that nets $5K in LTCG ($1000 in taxes and $100 in fees) than have $10K more in dividend income taxed at 31% ($3100 in taxes). Even a 5% fee on a sale of shares would be a much better deal than this.

High dividend strategies in taxable didn't make much sense then either.
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Re: Divs and Cap Gains are killing me

Post by bhsince87 »

House Blend wrote: Tue Nov 28, 2017 2:26 pm
bhsince87 wrote: Tue Nov 28, 2017 1:05 pm
randomguy wrote: Tue Nov 28, 2017 10:23 am

Owning dividend stocks never made sense.:) The story sounds great byt when you run the math, you don't do any better.

Actually, owning dividend stocks and funds made perfect sense, up until 10-15 years ago.

Many folks don't realize (or they forget) how big of a hit brokers fees used to be. I remember paying $25 a trade plus 1%, but I think they were even higher in the past.

Dividends and DRIPS were the best way to avoid these fees.
Fifteen-plus years ago, all dividends were taxed as ordinary income.
And most taxpayers paid 20% Federal on LTCG.

In 2002, I'd rather pay a 1% fee on a sale of $10K worth of shares that nets $5K in LTCG ($1000 in taxes and $100 in fees) than have $10K more in dividend income taxed at 31% ($3100 in taxes). Even a 5% fee on a sale of shares would be a much better deal than this.

High dividend strategies in taxable didn't make much sense then either.
Yes, from 1985 to 2003, they were fully taxed. For something like 30 years before that, they were fully taxed, but only after a certain annual amount.
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams
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ps56k
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Re: Divs and Cap Gains are killing me

Post by ps56k »

Electron wrote: Tue Nov 28, 2017 2:19 pm Identify higher turnover actively managed funds in taxable accounts that make large distributions. Think about a plan to move those assets to more tax efficient funds in the future. I have done that with several mutual funds in the past and taken advantage of market declines when they present themselves.

In the meantime, take all distributions in those funds as cash and reinvest in more tax efficient mutual funds. Also identify your current capital gains tax exposure should you decide to sell some or all of the shares.
Thanks all - for the replies and discussion....
Like has been mentioned, many years ago - I basically was looking for Div paying funds (Vanguard) and stocks (Schwab) to replace any CD type investments. Put the chips on the table, and let it ride.... and here we are -
I'll have to take a look at my mutual funds, and see how to tell what to expect in the CG area - and if it would make any sense to migrate...

Here are the big CG mutual fund holdings -
the other CG comes from some Schwab stock selling slices of very long term holds of ... Apple, Cisco, Starbucks, Amazon, McD, etc -

Vanguard LT Corp - $180 - Div $1,200
Vanguard Wellesley - $1,322 - Div $1,700
Vanguard Windsor - $15,234 - Div $4,700
T.Rowe Health Sciences - $10,419 - Div $2,500
T.Rowe Media - $1,855 - Div $460
T.Rowe New Horizons - $6,300 - Div --

and these Vanguard, with little/no CG - just Divs -
Mid-Cap Stock index
Total Intl Stock index
Total Intl Bond index
Total Bond index
Total Stock index

and the Schwab stocks from decades ago - selling small slices at a time....
Schwab - selling CG $46,000 and Divs $49,000
Last edited by ps56k on Tue Nov 28, 2017 10:25 pm, edited 2 times in total.
Admiral
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Re: Divs and Cap Gains are killing me

Post by Admiral »

ps56k wrote: Tue Nov 28, 2017 4:42 pm
Electron wrote: Tue Nov 28, 2017 2:19 pm Identify higher turnover actively managed funds in taxable accounts that make large distributions. Think about a plan to move those assets to more tax efficient funds in the future. I have done that with several mutual funds in the past and taken advantage of market declines when they present themselves.

In the meantime, take all distributions in those funds as cash and reinvest in more tax efficient mutual funds. Also identify your current capital gains tax exposure should you decide to sell some or all of the shares.
Thanks all - for the replies and discussion....
Like has been mentioned, many years ago - I basically was looking for Div paying funds (Vanguard) and stocks (Schwab) to replace any CD type investments. Put the chips on the table, and let it ride.... and here we are -
I'll have to take a look at my mutual funds, and see how to tell what to expect in the CG area - and if it would make any sense to migrate...

Here are the big CG mutual fund holdings -
the other CG comes from some Schwab stock selling slices of very long term holds of ... Apple, Cisco, Starbucks, Amazon, McD, etc -

Vanguard LT Corp - $180 - Div $1,200
Vanguard Wellesley - $1,322 - Div $1,700
Vanguard Windsor - $15,234 - Div $4,700
T.Rowe Health Sciences - $10,419 - Div $2,500
T.Rowe Media - $1,855 - Div $460
T.Rowe New Horizons - $6,300 - Div --

and these Vanguard, with little/no CG - just Div -
Mid-Cap Stock index
Total Intl Stock index
Total Intl Bond index
Total Bond index
Total Stock index
Wha? Maybe I'm not understanding your post. So the largest CG you're sitting on is $15,234? I was thinking you were talking tens of thousands. I don't know the ER on these TRowe funds but if you don't like them just sell them, pay the tax, and move on.
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Re: Divs and Cap Gains are killing me

Post by dbr »

Admiral wrote: Tue Nov 28, 2017 7:10 pm
ps56k wrote: Tue Nov 28, 2017 4:42 pm
Electron wrote: Tue Nov 28, 2017 2:19 pm Identify higher turnover actively managed funds in taxable accounts that make large distributions. Think about a plan to move those assets to more tax efficient funds in the future. I have done that with several mutual funds in the past and taken advantage of market declines when they present themselves.

In the meantime, take all distributions in those funds as cash and reinvest in more tax efficient mutual funds. Also identify your current capital gains tax exposure should you decide to sell some or all of the shares.
Thanks all - for the replies and discussion....
Like has been mentioned, many years ago - I basically was looking for Div paying funds (Vanguard) and stocks (Schwab) to replace any CD type investments. Put the chips on the table, and let it ride.... and here we are -
I'll have to take a look at my mutual funds, and see how to tell what to expect in the CG area - and if it would make any sense to migrate...

Here are the big CG mutual fund holdings -
the other CG comes from some Schwab stock selling slices of very long term holds of ... Apple, Cisco, Starbucks, Amazon, McD, etc -

Vanguard LT Corp - $180 - Div $1,200
Vanguard Wellesley - $1,322 - Div $1,700
Vanguard Windsor - $15,234 - Div $4,700
T.Rowe Health Sciences - $10,419 - Div $2,500
T.Rowe Media - $1,855 - Div $460
T.Rowe New Horizons - $6,300 - Div --

and these Vanguard, with little/no CG - just Div -
Mid-Cap Stock index
Total Intl Stock index
Total Intl Bond index
Total Bond index
Total Stock index
Wha? Maybe I'm not understanding your post. So the largest CG you're sitting on is $15,234? I was thinking you were talking tens of thousands. I don't know the ER on these TRowe funds but if you don't like them just sell them, pay the tax, and move on.
Well, I see dividends there on the order of $10,000 but he complained about "extra" tax cost of $10,000, so I would say the accounting is not complete. Extraction from this if there is going to be an extraction is a matter of detail.
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Hawaiishrimp
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Re: Divs and Cap Gains are killing me

Post by Hawaiishrimp »

dbr wrote: Tue Nov 28, 2017 8:58 am
Hawaiishrimp wrote: Mon Nov 27, 2017 11:28 pm Well, stop making money. That'll fix it.
But the problem with dividend investing in this case is that you can't stop making (taxable) money.
Donate them all.
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
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