Selling Funds for Unemployed (Zero Wage Income)

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Topic Author
keenani
Posts: 18
Joined: Wed Feb 26, 2014 9:18 pm

Selling Funds for Unemployed (Zero Wage Income)

Post by keenani »

Longtime lurker, wanted to ask for some advice from the community.

Unemployed at the moment with zero income, considering selling vanguard index funds since I am seeking to raise about $100k in cash for a new business, but not expecting income this year. Seems like I should sell the shares with highest cost basis first to reap benefits of 0% cap gains tax since this will be a zero (to low) income year?

Goal: Raise $100k
Tax Status: Married Filing Jointly, 2 children
Expected 2022 Income: US$0
Tax Residency: US citizen residing in Japan (Permanent Japan Tax Resident)

________STGain__LTGain__FMV/Cost Basis
VTMSX___$0.5k___$41.5k__103%
VTIAX____$0.4k___$13.8k__27%
VTSAX____$6.2k___$194k___81%

1) Is using FIFO cost basis to sell LTGain amount ($41.5k) of VTMSX, which has appreciated most, then LTGain amount $58.5k VTSAX to raise $100k cash?

2) Used the website below which I found on a different thread to do some simulations, does this sound right?
ex. $0 wage income, 0% tax on cap gains of up to $105,900
https://engaging-data.com/tax-brackets/ ... &cg=105900
ex. $71k wage income, 0% tax on cap gains of up to $34,800
https://engaging-data.com/tax-brackets/ ... 9&cg=34800

3) I'm a US citizen, but residing in Japan (permanent tax resident of Japan), does this complicate things?
Last edited by keenani on Sat Jan 08, 2022 3:31 am, edited 1 time in total.
nalor511
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Re: Selling Funds for Unemployed (Zero Wage Income)

Post by nalor511 »

Your dividends are $0?
Topic Author
keenani
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Joined: Wed Feb 26, 2014 9:18 pm

Re: Selling Funds for Unemployed (Zero Wage Income)

Post by keenani »

nalor511 wrote: Sat Jan 08, 2022 3:04 am Your dividends are $0?
Dividends are set to be automatically reinvested into the same fund. I've only been contributing to VTSAX the last 2 years (hence the much higher Short Term Gain), have not made new contributions to VTMSX or VTIAX for a long time (hence the lower Short-Term Gain from reinvesting dividends).

(BTW, realized the formatting of my holdings was hard to read, so have reformatted slightly.)
Jack FFR1846
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Re: Selling Funds for Unemployed (Zero Wage Income)

Post by Jack FFR1846 »

Opposite. If you're withdrawing an amount that the total amount is less than what would bring you out of the 0%, then you want to sell shares with the LOWEST basis (biggest gain). Why? Say you were in the 22% bracket in the future and want to sell. Would you want to sell and pay taxes on huge gains? Or on shares that have a higher basis, thus lower gains?

Also, consider what Japan is going to tax.
Bogle: Smart Beta is stupid
aristotelian
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Re: Selling Funds for Unemployed (Zero Wage Income)

Post by aristotelian »

keenani wrote: Sat Jan 08, 2022 3:33 am
nalor511 wrote: Sat Jan 08, 2022 3:04 am Your dividends are $0?
Dividends are set to be automatically reinvested into the same fund. I've only been contributing to VTSAX the last 2 years (hence the much higher Short Term Gain), have not made new contributions to VTMSX or VTIAX for a long time (hence the lower Short-Term Gain from reinvesting dividends).

(BTW, realized the formatting of my holdings was hard to read, so have reformatted slightly.)
Dividends are taxed whether or not they are reinvested. You will get a 1099DIV at the end of the year and you need to report that. Hopefully you have been doing so.

If you have a 401k consider using your standard deduction to do a Roth conversion at no tax cost. If you can keep the realized gains under 40k (80k for MFJ) you would still pay no tax.
Topic Author
keenani
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Joined: Wed Feb 26, 2014 9:18 pm

Re: Selling Funds for Unemployed (Zero Wage Income)

Post by keenani »

aristotelian wrote: Sat Jan 08, 2022 8:36 am
keenani wrote: Sat Jan 08, 2022 3:33 am
nalor511 wrote: Sat Jan 08, 2022 3:04 am Your dividends are $0?
Dividends are set to be automatically reinvested into the same fund. I've only been contributing to VTSAX the last 2 years (hence the much higher Short Term Gain), have not made new contributions to VTMSX or VTIAX for a long time (hence the lower Short-Term Gain from reinvesting dividends).

(BTW, realized the formatting of my holdings was hard to read, so have reformatted slightly.)
Dividends are taxed whether or not they are reinvested. You will get a 1099DIV at the end of the year and you need to report that. Hopefully you have been doing so.

If you have a 401k consider using your standard deduction to do a Roth conversion at no tax cost. If you can keep the realized gains under 40k (80k for MFJ) you would still pay no tax.
Thanks. Yes have been reporting everything annually. Don't have a 401k but have contributed to a ROTH IRA, which I now realize will be illegal if I have zero income in 2022.
Last edited by keenani on Mon Jan 10, 2022 12:56 am, edited 1 time in total.
Topic Author
keenani
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Joined: Wed Feb 26, 2014 9:18 pm

Re: Selling Funds for Unemployed (Zero Wage Income)

Post by keenani »

Jack FFR1846 wrote: Sat Jan 08, 2022 7:36 am Opposite. If you're withdrawing an amount that the total amount is less than what would bring you out of the 0%, then you want to sell shares with the LOWEST basis (biggest gain). Why? Say you were in the 22% bracket in the future and want to sell. Would you want to sell and pay taxes on huge gains? Or on shares that have a higher basis, thus lower gains?

Also, consider what Japan is going to tax.
Typo on my part, I meant exactly what you were saying LOWEST BASIS (biggest gain), hence FIFO method (first in being that which was acquired in the beginning at the lowest basis and has appreciated the most). Thank you!
aristotelian
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Re: Selling Funds for Unemployed (Zero Wage Income)

Post by aristotelian »

keenani wrote: Mon Jan 10, 2022 12:34 am
aristotelian wrote: Sat Jan 08, 2022 8:36 am
keenani wrote: Sat Jan 08, 2022 3:33 am
nalor511 wrote: Sat Jan 08, 2022 3:04 am Your dividends are $0?
Dividends are set to be automatically reinvested into the same fund. I've only been contributing to VTSAX the last 2 years (hence the much higher Short Term Gain), have not made new contributions to VTMSX or VTIAX for a long time (hence the lower Short-Term Gain from reinvesting dividends).

(BTW, realized the formatting of my holdings was hard to read, so have reformatted slightly.)
Dividends are taxed whether or not they are reinvested. You will get a 1099DIV at the end of the year and you need to report that. Hopefully you have been doing so.

If you have a 401k consider using your standard deduction to do a Roth conversion at no tax cost. If you can keep the realized gains under 40k (80k for MFJ) you would still pay no tax.
Thanks. Yes have been reporting everything annually. Don't have a 401k but have contributed to a ROTH IRA, which I now realize will be illegal if I have zero income in 2022.
You can always do a return of contribution. Not a big deal.
investuntilimrich
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Re: Selling Funds for Unemployed (Zero Wage Income)

Post by investuntilimrich »

I think I'd back the truck way up. Why do you need 100k to start a business you don't expect to be successful?
SnowBog
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Re: Selling Funds for Unemployed (Zero Wage Income)

Post by SnowBog »

investuntilimrich wrote: Wed Jan 12, 2022 7:54 am I think I'd back the truck way up. Why do you need 100k to start a business you don't expect to be successful?
+1

Would be different if this post was in November or December, and you expected to take time to launch business and make money.

But you have 352 days left this year to get the business started and make money. If it's going to take longer than that, I'd be concerned.

And if you make plans now assuming no income and the business takes off and makes much more than you'd imagine, you could be seeing yourself up for avoidable higher taxes.
SnowBog
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Re: Selling Funds for Unemployed (Zero Wage Income)

Post by SnowBog »

keenani wrote: Sat Jan 08, 2022 2:35 am ________STGain__LTGain__FMV/Cost Basis
VTMSX___$0.5k___$41.5k__103%
VTIAX____$0.4k___$13.8k__27%
VTSAX____$6.2k___$194k___81%
I'm probably reading the above wrong... But my interpretation of FMV/Cost Basis is exactly that... Using VTMSX as the example, you are saying that the current value (FMV) is 103% of your cost basis - in other words you have 3% gain.

Which to my eyes means you have lost 73% of VTIAX and 19% of VTSAX. If true, you'd be wanting to tax loss harvest.

But I can't fathom VTSAX being down 19% or VTIAX being down 73% in recent years. So I'm clearly missing something...
Topic Author
keenani
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Joined: Wed Feb 26, 2014 9:18 pm

Re: Selling Funds for Unemployed (Zero Wage Income)

Post by keenani »

SnowBog wrote: Thu Jan 13, 2022 3:57 am
keenani wrote: Sat Jan 08, 2022 2:35 am ________STGain__LTGain__FMV/Cost Basis
VTMSX___$0.5k___$41.5k__103%
VTIAX____$0.4k___$13.8k__27%
VTSAX____$6.2k___$194k___81%
I'm probably reading the above wrong... But my interpretation of FMV/Cost Basis is exactly that... Using VTMSX as the example, you are saying that the current value (FMV) is 103% of your cost basis - in other words you have 3% gain.

Which to my eyes means you have lost 73% of VTIAX and 19% of VTSAX. If true, you'd be wanting to tax loss harvest.

But I can't fathom VTSAX being down 19% or VTIAX being down 73% in recent years. So I'm clearly missing something...
Sorry its a bit confusing. VTSMX is 103% up (as in 2.03x multiple), etc.
Topic Author
keenani
Posts: 18
Joined: Wed Feb 26, 2014 9:18 pm

Re: Selling Funds for Unemployed (Zero Wage Income)

Post by keenani »

SnowBog wrote: Thu Jan 13, 2022 3:49 am
investuntilimrich wrote: Wed Jan 12, 2022 7:54 am I think I'd back the truck way up. Why do you need 100k to start a business you don't expect to be successful?
+1

Would be different if this post was in November or December, and you expected to take time to launch business and make money.

But you have 352 days left this year to get the business started and make money. If it's going to take longer than that, I'd be concerned.

And if you make plans now assuming no income and the business takes off and makes much more than you'd imagine, you could be seeing yourself up for avoidable higher taxes.
Yes, kicking myself in the ass for not thinking this through 2 weeks earlier prior to year-end...!
SnowBog
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Re: Selling Funds for Unemployed (Zero Wage Income)

Post by SnowBog »

keenani wrote: Fri Jan 14, 2022 3:26 am
SnowBog wrote: Thu Jan 13, 2022 3:57 am
keenani wrote: Sat Jan 08, 2022 2:35 am ________STGain__LTGain__FMV/Cost Basis
VTMSX___$0.5k___$41.5k__103%
VTIAX____$0.4k___$13.8k__27%
VTSAX____$6.2k___$194k___81%
I'm probably reading the above wrong... But my interpretation of FMV/Cost Basis is exactly that... Using VTMSX as the example, you are saying that the current value (FMV) is 103% of your cost basis - in other words you have 3% gain.

Which to my eyes means you have lost 73% of VTIAX and 19% of VTSAX. If true, you'd be wanting to tax loss harvest.

But I can't fathom VTSAX being down 19% or VTIAX being down 73% in recent years. So I'm clearly missing something...
Sorry its a bit confusing. VTSMX is 103% up (as in 2.03x multiple), etc.
Gotcha! Figured I was missing something!

For what it's worth, the general recommendation would be to not look at the funds as a whole, but look at the underlying "lots" purchased.

Using VTSMX as an example, maybe the bulk of the gains are from "lots" you purchased years ago. More so, maybe you bought another "lot" in December, which has since [likely] ended up with a loss.

If you have any "lots" that have losses, you could sell them (aka Tax Loss Harvesting) and actually get a reduction on your taxes (and/or an offset to future gains depending on how big of the loss and if you have other gains).

You'll want to be mindful of "wash sale" rules, as that could lower or eliminate the loss.
KLDome
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Re: Selling Funds for Unemployed (Zero Wage Income)

Post by KLDome »

Forgive me keenani and helpful others, for jumping in here. It looks like my question is slightly related:

I have zero earned income worldwide, no Social Security, retired abroad, foreign assets below US tax limits. In a good year I might make 3-5 K from Vanguard funds, and it is practically my only US income. Do I still have to worry about tax differences between long and short term selling?

TQ from KLDome

PS: Keenani - Kiyoutsukete, Gambare!
Topic Author
keenani
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Joined: Wed Feb 26, 2014 9:18 pm

Re: Selling Funds for Unemployed (Zero Wage Income)

Post by keenani »

KLDome wrote: Fri Jan 14, 2022 2:16 pm Forgive me keenani and helpful others, for jumping in here. It looks like my question is slightly related:

I have zero earned income worldwide, no Social Security, retired abroad, foreign assets below US tax limits. In a good year I might make 3-5 K from Vanguard funds, and it is practically my only US income. Do I still have to worry about tax differences between long and short term selling?

TQ from KLDome

PS: Keenani - Kiyoutsukete, Gambare!
From my reading across various sources, likely not, although I defer to those way more knowledgeable than me on these forums. I've been using the below as a quick gauge when in doubt. Dont think its 100% accurate from reading the comments on the same page, but good enough as a rough guideline!

https://engaging-data.com/tax-brackets
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