Generating income from Amazon Stock, raising cost basis and more

[CrownMe]

I made a huge mistake sticking my head in the sand for years and not paying attention to my investments. Now I want to make up for lost time, lost opportunities and lost income. I have been studying what I need to do in order to generate income from my Amazon stock. I am designing and writing a program to help as well. I think I have all the information and am aware of the caveats, but I want to make sure I do and discuss what I plan to do with experienced investors.

I need to get my cost basis up because it is pretty low. Initially I will have to pay some high taxes in order to do this quickly. At first I was looking at keeping my taxable capital gain under the $38,600 to at least have 0% federal tax. But this would take years to get the cost basis up for all my shares plus I would still have to pay state tax. So I'm not worried about this now. I was also thinking I should keep the income below $200,000 to avoid the extra 3.8% NIT (net investment tax). I Also thought I should keep the CG below $425,800 to avoid the 20% fed tax at that point. But after hours of penciling things out, I'm wondering if I should not worry about the tax at all, considering I can start generating anywhere from about $24,000 to $9,600,000 a year when I engage my plan. These figures are based on working with about 100 shares and anywhere from a $1 to $100 swing in share prices. The top range would involve more than 100 shares but the same price swings.

Part of my strategy is to always buy back the stocks I sell as I want to keep the stock. This will be a different slant to buying low and selling high.

I'm hoping to find some good advice and support on this forum and to get some dialog going about all of this. Are there any things I should be aware of that I might have missed in designing this plan?

Thanks in advance!

CrownMe

[fortfun]

I'm not exactly sure what you are trying to do. The vast majority of Bogleheads buy and hold total index funds. I don't know if you'll receive much advice, about this type of question, on this board. Have you read the Boglehead wiki?

"Never try to time the market

There is a large amount of research showing that typical mutual fund investors actually perform far worse than the mutual funds they invest in because they tend to buy after a fund has done well and tend to sell what they own when it has done poorly. Studies on timing using returns data show no evidence of positive timing. The vast majority of investors earn less than the market due to two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market. This behavior of buy high, sell low is guaranteed to produce poor results.

Instead, Bogleheads create a good plan and then stick with it, which consistently produces good outcomes over the long term. [note 3]"

[dcop]

I've been in this situation for years as I have a successful taxable stock portfolio, good problem to have. I've been selling parts of it every year to stay at the 0% tax and then buying it back just like you say. It's a great dividend portfolio so I still want to keep it. Over 15 years I've managed to do this every year but sometimes not as much because of my W2 income. Best way is to max out 401k and traditional IRA and HSA. This frees up more space to be able to keep cap gain at 0%. But yes it takes years no way around that unless you want to wait til retirement when other income can be controlled more. Even after doing this for 15 years I still have 110K in cap gains I'd like to whittle down.

[HEDGEFUNDIE]

I'm not exactly sure what you are trying to do. The vast majority of Bogleheads buy and hold total index funds. I don't know if you'll receive much advice, about this type of question, on this board. Have you read the Boglehead wiki?

"Never try to time the market

There is a large amount of research showing that typical mutual fund investors actually perform far worse than the mutual funds they invest in because they tend to buy after a fund has done well and tend to sell what they own when it has done poorly. Studies on timing using returns data show no evidence of positive timing. The vast majority of investors earn less than the market due to two common timing mistakes: buying yesterday's top performers, and letting your emotions cause you to attempt to predict the direction of the stock market. This behavior of buy high, sell low is guaranteed to produce poor results.

Instead, Bogleheads create a good plan and then stick with it, which consistently produces good outcomes over the long term. [note 3]"

The OP is asking about tax gain harvesting. Not market timing.

[Lars_2013]

Why do you need to raise the cost basis? Assuming Amazon continues to not pay dividends, why not just sell whatever number of shares you desire to generate the income you want rather than raising the tax basis on all of the funds?

[mhadden1]

I can start generating anywhere from about $24,000 to $9,600,000 a year when I engage my plan.

Way way way out of my bush league. I would get a real live tax accountant that is qualified for the big show.

[drk]

I need to get my cost basis up because it is pretty low.

Why is this a problem? Your low cost-basis only matters if you sell stock. Otherwise, it's moot. If you need income from your stock, you have a few options:

1. Sell it (easiest option)
2. Sell calls (still pretty easy)
3. Securities lending (probably not very lucrative for Amazon)

More details on your plan and what you're trying to do would be helpful.

[mrsurr]

If you’re facing a massive capital gain, opportunity zone funds are an option. They’re risky but offer accredited investors a way to defer a capital gain into a real estate investment that - if held at least 7 years - will buy you a 15% exclusion on your original capital gain and - if held 10 - will increase the basis on your investment to fair market value at the time of disposition. I’ve never seen an irs program like it.

[aspiringboglehead]

But after hours of penciling things out, I'm wondering if I should not worry about the tax at all, considering I can start generating anywhere from about $24,000 to $9,600,000 a year when I engage my plan. These figures are based on working with about 100 shares and anywhere from a $1 to $100 swing in share prices. The top range would involve more than 100 shares but the same price swings.

It sounds as if you're saying you believe that you have a way of trading Amazon stock over the short term that might generate up to $25,000/day based on an investment of around $160,000 (the cost of 100 shares of Amazon) or perhaps some moderately larger investment. If that is what you are saying, then

(1) This isn't the right forum to be addressing; this isn't a forum about day trading or swing trading but about investing, ordinarily passively, over the long term. Most people here do not believe you can reliably make money by trading short-term changes in a single stock.

(2) Yes, given what you appear to believe, you probably should not worry about tax. After tax, you will be able to keep some of each new dollar that you believe your technique will generate; that is, each new dollar raises what you walk away with, and forgoing that dollar decreases what you walk away with. (If this is not clear, you may benefit from reading about "marginal rates" of taxation.) You should care only about after-tax income, not about what you're paying in tax. The only legal ways to "get your cost basis up" are to sell the shares you already have (paying tax on them) or to die and take advantage of the step-up in basis.