Special "Bogleheads on Investing" podcast on taxes

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Special "Bogleheads on Investing" podcast on taxes

Post by Rick Ferri » Wed Apr 01, 2020 11:56 am

I rarely say something is a must-read or a must-listen, but I'm making an exception with this podcast.

Jeff Levine CPA/PFS, CFP is my guest for this special Bolgleheads on Investing podcast. In this packed one-hour episode, we cover the CARES Act, SECURE Act, the new moral hazard in the rental real estate market, tax-loss harvesting, and tax-swapping. You'll want to listen to it all - straight through to the end.

Jeff Levine is a Certified Public Accountant, Certified Financial Planner, financial adviser, and a complete tax nerd. He is the lead financial planning guru for Kitces.com, home of the popular Nerd’s Eye View blog, and the founder of Fully Vested Advice, Inc., which provides financial education and consulting services to industry professionals. He is also the Director of Advanced Planning at Buckingham Strategic Wealth.

Jeff regularly appears on CNBC and Fox Business and is a frequent guest on nationally syndicated radio shows and podcasts. He is an accomplished author including contributing to Kiplinger, Market Watch, several books, and is often quoted in the country’s leading financial publications, including The Wall Street Journal, The Street, InvestmentNews, and more

Bolgleheads on Investing with Jeff Levine CPA/CFP, hosted by Rick Ferri

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by whodidntante » Wed Apr 01, 2020 12:00 pm

I requested a doom podcast. Is this a doom podcast? :twisted:

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by Rick Ferri » Wed Apr 01, 2020 12:18 pm

No. This is a get-your-fair-share of $2 trillion dollars podcast.

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by abuss368 » Wed Apr 01, 2020 12:45 pm

Thanks Rick! Looking forward to listening and learning!
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Re: Special "Bogleheads on Investing" podcast on taxes

Post by HueyLD » Wed Apr 01, 2020 1:11 pm

Outstanding podcast! It covers lots of FAQs related to both the SECURE Act and the CARES Act.

I think everyone who is interested in learning from an expert should listen to this podcast.

Thank you Rick for having Mr. Levine on the podcast and asking very insightful questions.

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by livesoft » Wed Apr 01, 2020 1:50 pm

"It is still very gray."

That's the answer to "What does the IRS mean by 'substantially identical' securities?"

But is the word "gray" substantially identical to the word "grey"?
Last edited by livesoft on Wed Apr 01, 2020 1:59 pm, edited 1 time in total.
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Re: Special "Bogleheads on Investing" podcast on taxes

Post by Rick Ferri » Wed Apr 01, 2020 1:57 pm

livesoft wrote:
Wed Apr 01, 2020 1:50 pm
"It is still very gray."

That's the answer to "What does the IRS mean by 'substantially identical' securities?"
It comes down to your own interpretation of the tax code when there is no guidance from the IRS or tax courts. That was the essence of the conversation. We disagreed, BTW. Although I'm not a tax attorney, I am a securities analyst who specializes in index investing, and I have my own view of what constitutes a substancially identical index security (fund or ETF).

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by HueyLD » Wed Apr 01, 2020 2:01 pm

Because of a lack of official guidance on “substantially identical,” I vote to agree with Rick’s interpretation as he is a well respected security analyst.

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by azanon » Wed Apr 01, 2020 2:07 pm

Rick Ferri wrote:
Wed Apr 01, 2020 1:57 pm
livesoft wrote:
Wed Apr 01, 2020 1:50 pm
"It is still very gray."

That's the answer to "What does the IRS mean by 'substantially identical' securities?"
It comes down to your own interpretation of the tax code when there is no guidance from the IRS or tax courts. That was the essence of the conversation. We disagreed, BTW. Although I'm not a tax attorney, I am a securities analyst who specializes in index investing, and I have my own view of what constitutes a substancially identical index security (fund or ETF).

Rick Ferri
I haven't listed to the podcast yet, and have no financial or legal credentials whatsoever, but if you want my opinion, when in doubt on a 1040 on something relatively minor (meaning not any egregiously incorrect or intentional error where large amounts of money are involved), always error in your favor. The audit rate is about 1% or so I heard and if you are audited and they point the "error" out, just give whatever reasonable explanation you used to explain why you thought you were entitled to do whatever you did. Worst case scenario - they're going to just bill you.

I must have filed ole...... 25 tax returns by now, always did them myself, and guess how many times I've been audited (you'll get it right, first try).*

* I have modest income, and I"m not a 1%'er. If you're a 1%'er and have very substantial income and run a private business, strike everything I said. It's going to be more important to get it right, and your chance of audit is probably much higher.

* No one get me wrong. I'm not suggesting at all to do anything illegal here. That's NOT what I'm saying. I'm just saying if you're debating whether, say, going from VOO to VTSAX is substantially identical and you get that wrong, and it's not over a 7 figure sale, you're probably going to be safe regardless of what you decide.

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by Rick Ferri » Thu Apr 02, 2020 7:35 am

HueyLD wrote:
Wed Apr 01, 2020 2:01 pm
Because of a lack of official guidance on “substantially identical,” I vote to agree with Rick’s interpretation as he is a well respected security analyst.
I think the only way this is ever going to be resolved is if the IRS provides guidance or in tax court. Neither has happened in the decades since this rule has been on the books.

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by SimpleMan68 » Thu Apr 02, 2020 7:45 am

Rick Ferri wrote:
Wed Apr 01, 2020 11:56 am
I rarely say something is a must-read or a must-listen, but I'm making an exception with this podcast.

Jeff Levine CPA/PFS, CFP is my guest for this special Bolgleheads on Investing podcast. In this packed one-hour episode, we cover the CARES Act, SECURE Act, the new moral hazard in the rental real estate market, tax-loss harvesting, and tax-swapping. You'll want to listen to it all - straight through to the end.

Jeff Levine is a Certified Public Accountant, Certified Financial Planner, financial adviser, and a complete tax nerd. He is the lead financial planning guru for Kitces.com, home of the popular Nerd’s Eye View blog, and the founder of Fully Vested Advice, Inc., which provides financial education and consulting services to industry professionals. He is also the Director of Advanced Planning at Buckingham Strategic Wealth.

Jeff regularly appears on CNBC and Fox Business and is a frequent guest on nationally syndicated radio shows and podcasts. He is an accomplished author including contributing to Kiplinger, Market Watch, several books, and is often quoted in the country’s leading financial publications, including The Wall Street Journal, The Street, InvestmentNews, and more

Bolgleheads on Investing with Jeff Levine CPA/CFP, hosted by Rick Ferri

Rick Ferri
Thank you Rick for this interview. Just finished it this morning and it was excellent, as I think all of them have been. I especially appreciated the information about the Pandemic Unemployment Assistance program as one of my tenants is self-employed and was not aware of this program. This is good news for her and me (as her landlord).

Do you, or any Boglehead, have a recommendation for a good book that addresses tax issues for investors? Thank you again for all you do for the Boglehead community and looking forward to listening to you on ChooseFI as soon as I get a chance.
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Re: Special "Bogleheads on Investing" podcast on taxes

Post by iceport » Thu Apr 02, 2020 12:32 pm

Rick Ferri wrote:
Wed Apr 01, 2020 11:56 am
I rarely say something is a must-read or a must-listen, but I'm making an exception with this podcast.

Jeff Levine CPA/PFS, CFP is my guest for this special Bolgleheads on Investing podcast. In this packed one-hour episode, we cover the CARES Act, SECURE Act, the new moral hazard in the rental real estate market, tax-loss harvesting, and tax-swapping. You'll want to listen to it all - straight through to the end.
Thanks Rick for an interesting and informative interview. I was particularly interested in the TLH discussion, which starts at around the 48:00 minute mark.

I gleaned two important opinions from Jeff's comments.

1) Substantially Identical: Though there is disagreement on this here on the forum — and with Rick as noted in the interview — Jeff does consider asset correlation to be one valid measure of whether two funds are substantially identical. This perspective aligns with similar comments I've read by Michael Kitces and Kaye Thomas.

And he states his opinion on swapping between two funds that use the same index unequivocally and with absolute certainty.

Jeff Levine:
If I change my S&P 500 ETF for a S&P 100 ETF is that substantially identical? And there’s really not a great answer because, again, you’d say it’s significantly different you’re only having 100 companies versus 500, or roughly, right, it’s a slightly more than 500 in the S&P 500. But if you look at how they track one another and the correlation, they are really really close in many instances. And so, the IRS, I could very easily see the IRS coming in and having that argument to say that, “Look, you have 98% correlation,” just hypothetically speaking, and "How could you say that these aren’t substantially identical?" Ninety-eight percent correlation is basically the same correlation. You’re really essentially buying the same thing just with a different name on it.
Certainly going from Company A S&P 500 to Company B S&P 500, that’s going to be substantially identical. I don’t think there’s any question about that.

2) Consider the Scale — i.e. the magnitude of the risk: If someone is contemplating a TLH involving a grey area, and there's no clear answer on exactly how the IRS would treat the question, consider the consequences of being wrong. If you get it wrong on a nominal dollar value, the adverse consequences would be minor, and so you might be willing to accept the risk. If you get it wrong on a large dollar value, and the adverse consequences would be severe, then it might make more sense to be more conservative in the wash sale rule interpretation and not assume the risk of being wrong. Makes absolute sense. (And I'll just note that Jeff's not referring to the chance of being caught, but how well you could tolerate the consequences of being caught.)

Jeff Levine:
I think part of this also comes down to just the practical element of this, right? If you’re selling a really small position in your portfolio and you’re looking to claim a $2 or $3 thousand dollar loss, you know and at the end of the day if that got disallowed by the IRS it’s not going to be the end of the world. On the other hand, if you were selling a big position that you had purchased and were talking about the difference of being able to claim a $100,000 loss or something like that, then maybe that’s where you tend to be a little more — and I agree, my position is a little bit conservative I will admit that. But as a as someone who doesn’t want to be on the other end of the IRS disallowing that and popping the person’s income up $100,000 and seeing Medicare Part D and Part D premiums inflate and all the other nasty things that come along with it, I’ve grown a little bit conservative in that element.

I was disappointed there wasn't enough time for questions on the involvement of 401ks in wash sales, and potential strategies to avoid wash sales in IRAs, but it was indeed an information-packed hour.

Thanks again!
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Re: Special "Bogleheads on Investing" podcast on taxes

Post by Rick Ferri » Fri Apr 03, 2020 8:18 am

I was disappointed there wasn't enough time for questions on the involvement of 401ks in wash sales, and potential strategies to avoid wash sales in IRAs, but it was indeed an information-packed hour.
It was hard to get in the information that we did cover. To answer your question, if you sell a security at a loss in a taxable account, you cannot buy it within 30 days before or after the sale. It doesn't matter where you or your spouse buy the security; IRA, 401k, taxable, Roth.

Wash sale rules from Bogleheads Wiki

IRS Publication 550

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by livesoft » Fri Apr 03, 2020 8:27 am

I would have said:

"... if you sell a security at a loss in a taxable account, you cannot buy [other shares of] it within 30 days before or after the sale. "

Because if I buy VTSAX today and sell all of those shares on Monday at a loss, that is not a wash sale even though I bought the shares within 30 days before I sold for a loss. This is probably one of the biggest misconceptions about selling for a loss that appears over and over and over and over and over ... on this forum. The other misconception is that wash sales are illegal. They are not.
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Re: Special "Bogleheads on Investing" podcast on taxes

Post by retiringwhen » Fri Apr 03, 2020 10:55 am

Everyone is talking about the wash sale discussion, but I thought the overview of the current tax law changes and the stimulus package were very helpful in understanding how it may impact individual BHer's. Thanks a bunch Rick and Jeff!

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by tipswatcher » Fri Apr 03, 2020 1:20 pm

I really enjoyed this podcast, even though a lot of the initial discussion won't affect me. I won't be getting a $1,200 deposit from the Treasury, and I won't be collecting unemployment, and the SECURE act didn't affect me much because I don't have kids. The wash sale discussion was really interesting and let's face it -- this will be the first time many of us will be aggressively trying Tax Loss Harvesting in many years. It makes sense to do it, and I like Rick's "theory" that the iShares and Vanguard funds aren't substantially identical because 1) they track different indexes and 2) they are offered by separate companies. So ... not "identical," but sure, "similar."

I loved the moment when both Rick and Jeff Levine joked, "How would the IRS even know?" <Laughter erupted.> And it is a good point, because the IRS does know about your sales, but I don't think they learn about your purchases until the time you sell that asset.

The key point is that the IRS is unlikely to look deeply at your return if your losses are within reason and not balancing off gigantic gains. You might just be carrying forward $3,000-a-year losses into the future. If you are a high-audit-risk person, be careful. If not, follow the rules, at least as Rick describes them. Alan Roth, another financial adviser who is well respected here on Bogleheads, has similar advice: "Since I’m an indexer, I can tell clients to sell one total stock index fund and simultaneously buy another brand of a total stock index fund." https://www.financial-planning.com/opin ... -right-now

(I am not a tax adviser, so don't trust me for advice!)

On the podcast itself, Jeff Levine was an engaging talker, expressing ideas in easy-to-understand terms. I was really impressed.
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Re: Special "Bogleheads on Investing" podcast on taxes

Post by iceport » Fri Apr 03, 2020 4:24 pm

Rick Ferri wrote:
Fri Apr 03, 2020 8:18 am
I was disappointed there wasn't enough time for questions on the involvement of 401ks in wash sales, and potential strategies to avoid wash sales in IRAs, but it was indeed an information-packed hour.
It was hard to get in the information that we did cover. To answer your question, if you sell a security at a loss in a taxable account, you cannot buy it within 30 days before or after the sale. It doesn't matter where you or your spouse buy the security; IRA, 401k, taxable, Roth.

Wash sale rules from Bogleheads Wiki

IRS Publication 550

Rick Ferri
Thank you, Rick. By the way, that wasn't intended as criticism of the podcast, by any means. It was a lively, thought-provoking and informative interview! The whole series has been excellent, really. I guess it was just a case of hope springing eternal on helping to resolve long-simmering conflicts over wash sale rule interpretations.
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Re: Special "Bogleheads on Investing" podcast on taxes

Post by Rick Ferri » Sat Apr 04, 2020 7:40 am

I guess it was just a case of hope springing eternal on helping to resolve long-simmering conflicts over wash sale rule interpretations.
This will remain a gray area until a tax-wash case involving index funds shows up in tax court and a judge decides. In the meantime, you have to make your own choice on where to draw the line.

My view is swapping from one fund company to another unrelated fund company is enough to show a security is not substantially identical (two different issuers by default cannot be identical). If you stay with one fund company, like Vanguard, swapping from one index fund to a different fund that follows a different index created by a different index provider is not substantially identical.

This is my interpretation and the one I follow with my own portfolio. Again, you have to make your own decision on where to draw the line, which is true with much of the tax code, BTW.

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by Copernicus » Sun Apr 05, 2020 2:58 pm

Rick Ferri wrote:
Wed Apr 01, 2020 11:56 am
I rarely say something is a must-read or a must-listen, but I'm making an exception with this podcast.

Jeff Levine CPA/PFS, CFP is my guest for this special

Rick Ferri
Hi Rick,
This interview is a wonderful help to individual investors. It is a "must listen"! I appreciate your interviewing style in every podcast. Thanks.
A question and a friendly suggestion below:
Many points here are worth visiting again. It would be wonderful if a transcript of the podcast would be available, since it is hard to find the right place in the podcast to hear a point again.
I also suggest that it would be great to mention the date of the podcast at the top.
regards,
C

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Re: Special "Bogleheads on Investing" podcast on taxes

Post by Rick Ferri » Sun Apr 05, 2020 3:12 pm

Transcripts for all podcasts are in the works. They are posted on Wiki pages as completed.

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