Really stupid question re: Capital Gains

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Kingpin
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Location: Santa Fe NM

Really stupid question re: Capital Gains

Post by Kingpin »

A sincerely embarrassing question and maybe I’m having a mental “moment” but I am trying to understand the taxation of capital gains.

I am trying to pair down some taxable accounts. When I look at capital gains Cost basis they state:

Total cost of $22000 Market value as of today $66000 and long term gain of $44000.

Depending on my tax rate let’s hypothetically say I am in the 20% category.

I then assume if I sell the shares I should expect to pay $8800 in long term gains. Is this correct?

Secondly, if I am paying dividends, short term and long term gains on this fund yearly, isn’t this double taxing of gains?

I’m not making any tax talk argument
Or political speech I know I must be missing something!

What am I Missing in terms of the taxation of gains when I sell versus the taxation of gains I pay annually when doing taxes?

Hopefully my question makes sense and someone can simplify this for me.

Thanks
Last edited by Kingpin on Wed May 20, 2020 12:30 pm, edited 1 time in total.
livesoft
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Re: Really stupid question

Post by livesoft »

One doesn't include unrealized capital gains in their income annually, so one does not pay capital gains tax annually on unrealized capital gains.

You may pay more than 20% tax on your realized long-term capital gains because you may be subject to the Net Investment Income Tax (NIIT) as well.

You may wish to look at a few of your actual tax returns (print out the forms if you don't have them and use tax-prep software) and read them to see what I am writing about.
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sailaway
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Re: Really stupid question re: Capital Gains

Post by sailaway »

Dividends are realized gains, so you pay taxes on them when they happen. If you had them reinvested, that amount is now part of the investment, and will not count again in capital gains when those stocks are sold - only the gain will be taxed.
Topic Author
Kingpin
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Location: Santa Fe NM

Re: Really stupid question re: Capital Gains

Post by Kingpin »

sailaway wrote: Wed May 20, 2020 12:32 pm Dividends are realized gains, so you pay taxes on them when they happen. If you had them reinvested, that amount is now part of the investment, and will not count again in capital gains when those stocks are sold - only the gain will be taxed.
Ok that makes sense, but how can I estimate those? In other words, my tax exposure if I sell now?
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simplesimon
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Re: Really stupid question re: Capital Gains

Post by simplesimon »

It sounds like your funds are throwing off capital gains as part of its year-end distribution. You'll pay taxes on those distributions, and if it gets reinvested in the fund, it's at a new cost basis. You'll pay taxes on the gains based on the reinvestment depending on the new cost basis, the price you sell, and how long it's been invested.
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simplesimon
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Re: Really stupid question re: Capital Gains

Post by simplesimon »

Kingpin wrote: Wed May 20, 2020 12:33 pm
sailaway wrote: Wed May 20, 2020 12:32 pm Dividends are realized gains, so you pay taxes on them when they happen. If you had them reinvested, that amount is now part of the investment, and will not count again in capital gains when those stocks are sold - only the gain will be taxed.
Ok that makes sense, but how can I estimate those? In other words, my tax exposure if I sell now?
The brokerage you're using hopefully is doing a good job of tracking what the cost basis of the reinvestment is. You should be able to see it on your account when you login.
sd323232
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Re: Really stupid question re: Capital Gains

Post by sd323232 »

Kingpin wrote: Wed May 20, 2020 12:27 pm A sincerely embarrassing question and maybe I’m having a mental “moment” but I am trying to understand the taxation of capital gains.

I am trying to pair down some taxable accounts. When I look at capital gains Cost basis they state:

Total cost of $22000 Market value as of today $66000 and long term gain of $44000.

Depending on my tax rate let’s hypothetically say I am in the 20% category.

I then assume if I sell the shares I should expect to pay $8800 in long term gains. Is this correct?

Secondly, if I am paying dividends, short term and long term gains on this fund yearly, isn’t this double taxing of gains?

I’m not making any tax talk argument
Or political speech I know I must be missing something!

What am I Missing in terms of the taxation of gains when I sell versus the taxation of gains I pay annually when doing taxes?

Hopefully my question makes sense and someone can simplify this for me.

Thanks
what is overall value of your account? you invested 22K, your stocks are 66K, your long term gains are 44K. So are your dividends are in cash now? u didnt invest them? If your total account is 66k, than 44K is your sum of capital gains and dividends? Capital gains and dividends are taxed separately, dividends get taxed for the year you receive them, capital gains get taxed for the year you sell.
Topic Author
Kingpin
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Location: Santa Fe NM

Re: Really stupid question re: Capital Gains

Post by Kingpin »

All gains and dividends have been reinvested
cherijoh
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Re: Really stupid question re: Capital Gains

Post by cherijoh »

Kingpin wrote: Wed May 20, 2020 12:33 pm
sailaway wrote: Wed May 20, 2020 12:32 pm Dividends are realized gains, so you pay taxes on them when they happen. If you had them reinvested, that amount is now part of the investment, and will not count again in capital gains when those stocks are sold - only the gain will be taxed.
Ok that makes sense, but how can I estimate those? In other words, my tax exposure if I sell now?
Let's say you purchased 100 shares at $25 each giving you a cost basis of $2500 (100x $25). If you received $40 in dividends and they were reinvested as 2 additional shares purchased at $20/each you now own 102 shares with a total cost basis of $2540. You can look up the current cost per share and this gives you all the info you need to estimate your tax exposure. It is a matter of having purchase records and basic arithmetic.
livesoft
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Re: Really stupid question re: Capital Gains

Post by livesoft »

sailaway wrote: Wed May 20, 2020 12:32 pm Dividends are realized gains, ...
Well, not really.
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22twain
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Re: Really stupid question re: Capital Gains

Post by 22twain »

cherijoh wrote: Wed May 20, 2020 12:54 pm
Kingpin wrote: Wed May 20, 2020 12:33 pm
sailaway wrote: Wed May 20, 2020 12:32 pm Dividends are realized gains, so you pay taxes on them when they happen. If you had them reinvested, that amount is now part of the investment, and will not count again in capital gains when those stocks are sold - only the gain will be taxed.
Ok that makes sense, but how can I estimate those? In other words, my tax exposure if I sell now?
Let's say you purchased 100 shares at $25 each giving you a cost basis of $2500 (100x $25). If you received $40 in dividends and they were reinvested as 2 additional shares purchased at $20/each you now own 102 shares with a total cost basis of $2540. You can look up the current cost per share and this gives you all the info you need to estimate your tax exposure. It is a matter of having purchase records and basic arithmetic.
Just to make this clear, you should be able to find somewhere in your online account, a table showing all of your "tax lots". Using the example above, with made-up dates, and assuming the current price per share is $23, you might see something like this:

Code: Select all

     Date    Shares    Price      Basis      Value   Gain/Loss
1/25/2020    100.00   $25.00  $2,500.00  $2,300.00    -$200.00
3/31/2020      2.00   $20.00     $40.00     $46.00       $6.00
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