Caps Gains Tax Strategy

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Topic Author
KDF
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Joined: Mon Jan 15, 2018 11:50 pm

Caps Gains Tax Strategy

Post by KDF » Sun Jun 24, 2018 12:52 pm

Unfortunately, I am sitting on $80K in realized short-term capital gains. I am effectively in a 50% marginal tax bracket, and will have to pay $40K in taxes. I would appreciate any thoughts on how I might evaluate potential investments in light of my tax situation. Here are some thoughts:

1. Buy 80K of Jan 19 SPY at the money calls and 80K of Jan 19 at the money puts
2. Buy 80K of Jan 19 SPY calls about 10% otm.

Not sure if matters but 80 is less than 5 percent of my invested assists. Thanks for any comments or thoughts.

MotoTrojan
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Joined: Wed Feb 01, 2017 8:39 pm

Re: Caps Gains Tax Strategy

Post by MotoTrojan » Sun Jun 24, 2018 6:22 pm

KDF wrote:
Sun Jun 24, 2018 12:52 pm
Unfortunately, I am sitting on $80K in realized short-term capital gains. I am effectively in a 50% marginal tax bracket, and will have to pay $40K in taxes. I would appreciate any thoughts on how I might evaluate potential investments in light of my tax situation. Here are some thoughts:

1. Buy 80K of Jan 19 SPY at the money calls and 80K of Jan 19 at the money puts
2. Buy 80K of Jan 19 SPY calls about 10% otm.

Not sure if matters but 80 is less than 5 percent of my invested assists. Thanks for any comments or thoughts.
I’m confused as to what you are trying to do. Why did you sell the asset? Did you not need the money? Other than harvesting any losses I’m not aware of how an option trade would reduce your tax impact.

UpperNwGuy
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Re: Caps Gains Tax Strategy

Post by UpperNwGuy » Sun Jun 24, 2018 7:44 pm

KDF wrote:
Sun Jun 24, 2018 12:52 pm
Unfortunately, I am sitting on $80K in realized short-term capital gains.
Why?

Topic Author
KDF
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Joined: Mon Jan 15, 2018 11:50 pm

Re: Caps Gains Tax Strategy

Post by KDF » Sun Jun 24, 2018 9:37 pm

The asset was GBTC. It had seen a meteoric rise and I thought it had peaked (which it had). My main questions are: 1.) how does a realized cap gain potentially change the in year risk / reward calculus, 2.) is there anyway to move the gain into next year?

For example, if I bought options and lost 80k, I would really only lose 40K after taxes. Is there a good way to take 40k of risk this year in exchange for a gain in 2019? How would making a speculative bet be different if I didn’t have cap gains?

Larry2623
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Re: Caps Gains Tax Strategy

Post by Larry2623 » Sun Jun 24, 2018 9:38 pm

confused

venkman
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Re: Caps Gains Tax Strategy

Post by venkman » Sun Jun 24, 2018 10:06 pm

KDF wrote:
Sun Jun 24, 2018 9:37 pm
For example, if I bought options and lost 80k, I would really only lose 40K after taxes. Is there a good way to take 40k of risk this year in exchange for a gain in 2019? How would making a speculative bet be different if I didn’t have cap gains?
But what if the worst-case scenario happened and you MADE money on the options? Then you would owe even MORE in taxes. Is that a risk you really want to take? :happy

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Peter Foley
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Re: Caps Gains Tax Strategy

Post by Peter Foley » Sun Jun 24, 2018 10:43 pm

Could you explain with a little detail what you are trying to do?

I get the impression that you want to use options to protect a gain that is significant and short term. The options would protect that gain and allow you to hold the investment with less risk until the gains are long term capital gains. Am I misreading your intent?

Topic Author
KDF
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Joined: Mon Jan 15, 2018 11:50 pm

Re: Caps Gains Tax Strategy

Post by KDF » Mon Jun 25, 2018 7:57 am

I have already sold the asset. I am just looking to offset or delay the cap gains by potentially creating a set of inverse positions (I don't have any loses to harvest).

bgf
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Re: Caps Gains Tax Strategy

Post by bgf » Mon Jun 25, 2018 8:30 am

sounds to me like you are using a large short term cap gain as a means of optionality with a highly speculative short term play.

in other words, the potential outcomes are this: 1) speculative play fails and you lose the money. this loss is offset against a large short term cap gain that is already locked in. you were gonna have to pay taxes on this money anyway, so the loss isn't so bad; 2) the speculative play pays off and you make a massive profit. i'll take paying taxes on more profit every day of the week.

is that correct?

in that case, i would buy an out of the money call option on a stock for like nov/dec and let it ride.

i currently have some $62.50 QCOM call options for Jan. '19 that i bought when the stock dipped to $50. if QCOM drops a bit more, you might buy something like that with a nov/dec expiration.
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"

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dratkinson
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Re: Caps Gains Tax Strategy

Post by dratkinson » Mon Jun 25, 2018 8:40 am

Option. Be happy. You have a $40K after-tax profit in less than 1yr. Do it again.


Option. To avoid the STCG tax, can donate the proceeds to your favorite charity. Though I seem to recall from forum discussions that the tax consequences are better if you donate appreciated shares, rather than the proceeds from selling appreciated shares (may circumvent an AGI test on cash charitable donations, don't remember).


Option. STCGs (and ordinary dividends) come with understood tax consequences. To avoid the STCG tax consequence, avoid taking the CG when ST, or avoid investments that are expected to generate STCGs (and ordinary dividends.)

See wiki topic on "Principles of tax-efficient fund placement": https://www.bogleheads.org/wiki/Princip ... _Placement


Option. One of the senior members has suggested an extension to above, to further increase our tax efficiency, by reviewing our Sch B part I (ordinary interest/dividends) and removing all investments which produce them.



Welcome.
d.r.a., not dr.a. | I'm a novice investor, you are forewarned.

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BL
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Re: Caps Gains Tax Strategy

Post by BL » Mon Jun 25, 2018 8:52 am

Be sure you will have 18.5k/person in trad 401k (or equivalent).

Be sure you have enough tax withheld or prepaid to IRS to avoid penalty.

Change all taxable funds to Specific Id method so you can TLH any lots that have a loss.

Be Happy!

H-Town
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Re: Caps Gains Tax Strategy

Post by H-Town » Mon Jun 25, 2018 9:32 am

KDF wrote:
Sun Jun 24, 2018 12:52 pm
Unfortunately, I am sitting on $80K in realized short-term capital gains. I am effectively in a 50% marginal tax bracket, and will have to pay $40K in taxes. I would appreciate any thoughts on how I might evaluate potential investments in light of my tax situation. Here are some thoughts:

1. Buy 80K of Jan 19 SPY at the money calls and 80K of Jan 19 at the money puts
2. Buy 80K of Jan 19 SPY calls about 10% otm.

Not sure if matters but 80 is less than 5 percent of my invested assists. Thanks for any comments or thoughts.
Nothing to do here except for getting down on your knees and pray for a flash crash.

If a flash crash does not happen, then be happy with 40k profit. Any loss generated without a corresponding lower cost basis will be just that - a loss. Why would you want to take a loss without the benefit of reducing the cost basis?

ofckrupke
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Re: Caps Gains Tax Strategy

Post by ofckrupke » Mon Jun 25, 2018 9:54 am

KDF wrote:
Mon Jun 25, 2018 7:57 am
I have already sold the asset. I am just looking to offset or delay the cap gains by potentially creating a set of inverse positions (I don't have any loses to harvest).
Positions inverse to what? You bought the thing, then you sold the thing for a gain; boom done. There is now no position to invert.

Strategy involves planning and possible later actions - you seem to have it backward. In exercising an owner's option to sell before opening some entangling/inverting position, you already cut yourself off from the part of the decision tree containing possibilities for tax mitigation of the good fortune (including some less good ones, like dying with the gain unrealized so your heirs could benefit from a step-up in its basis). Because it was for gain, there is no post hoc entanglement (in the fashion of a wash sale) to be had. Whatever positions you open now will be independent from the subject position and can't help you "un-realize" the realized gain. All they can do (if closed by year's end) is generate independent gains or losses.

But the year is still young; possibly you could marry someone with a lower income, or get laid OFF, and be taxed on the gain in a lower bracket.

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