Should most people sell stock this year for lower tax rate?

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tc101
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Should most people sell stock this year for lower tax rate?

Post by tc101 » Sat Jan 07, 2012 12:10 pm

Cap gains rates go up next year. For people in lower tax brackets the long term cap gain rate is 0% this year. I know situations vary, but especially for people in the lower brackets, it seems like they should sell all stock funds with gains this year, and then reinvest to have a higher cost basis in the future.

Am I missing anything?
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Re: Should most people sell stock this year for lower tax ra

Post by tc101 » Sat Jan 07, 2012 12:14 pm

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Re: Should most people sell stock this year for lower tax ra

Post by Midpack » Sat Jan 07, 2012 12:17 pm

I thought you were mistaken, but I guess it is "next year" now isn't it :lol:. I plan to sell/realize some cap gains by the end of next year if legislation doesn't change rates (not taking a position for or against).
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Re: Should most people sell stock this year for lower tax ra

Post by AQ » Sat Jan 07, 2012 12:19 pm

I guess for those who pays AMT like me, it won't make much difference?

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Re: Should most people sell stock this year for lower tax ra

Post by retcaveman » Sat Jan 07, 2012 12:36 pm

One consideration is 0 cap gains rate vs stepped up basis on inherited funds at death. Also, the 0 cap gains for this year is limited to those in the 15% tax bracket, which was $69k in 2011. A cap gain counts toward your AGI, but the tax rate on the gain in the 15% bracket is 0.
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Re: Should most people sell stock this year for lower tax ra

Post by 555 » Sat Jan 07, 2012 12:37 pm

tc101 wrote:Cap gains rates go up next year. For people in lower tax brackets the long term cap gain rate is 0% this year. I know situations vary, but especially for people in the lower brackets, it seems like they should sell all stock funds with gains this year, and then reinvest to have a higher cost basis in the future.

Am I missing anything?
You should certainly think about it, and selling and rebuying may ssometimes be the right choice, but there are also several possible reasons why it may not be. I'll let others elaborate.

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Re: Should most people sell stock this year for lower tax ra

Post by hicabob » Sat Jan 07, 2012 12:39 pm

I plan to sell then rebuy on my taxable accounts. If one doesn't expect long term cap gains to go below 15% in the next few decades it seems like the thing to do

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Re: Should most people sell stock this year for lower tax ra

Post by JW-Retired » Sat Jan 07, 2012 12:41 pm

For those of us in a high income tax state like CA, paying now at 24% versus much later at 29% is not very compelling.
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Re: Should most people sell stock this year for lower tax ra

Post by livesoft » Sat Jan 07, 2012 12:48 pm

tc101 wrote:Cap gains rates go up next year. For people in lower tax brackets the long term cap gain rate is 0% this year. I know situations vary, but especially for people in the lower brackets, it seems like they should sell all stock funds with gains this year, and then reinvest to have a higher cost basis in the future.

Am I missing anything?
You are missing that most folks in lower brackets do not own any investments with unrealized long-term capital gains in taxable accounts. They simply cannot afford such things.
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Re: Should most people sell stock this year for lower tax ra

Post by The Wizard » Sat Jan 07, 2012 12:57 pm

livesoft wrote: You are missing that most folks in lower brackets do not own any investments with unrealized long-term capital gains in taxable accounts. They simply cannot afford such things.
That's certainly true for full-time employees during their working years. But as we well know, it's possible for certain bogleheadish types to play the system a bit after terminating employment by living on after-tax savings for a couple years.
For those folks, this might be a no brainer?
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Re: Should most people sell stock this year for lower tax ra

Post by Bob's not my name » Sat Jan 07, 2012 1:01 pm

livesoft wrote:You are missing that most folks in lower brackets do not own any investments with unrealized long-term capital gains in taxable accounts. They simply cannot afford such things.
This is a good point, but livesoft also knows that lots of rich retirees are in the lower brackets.

Some of these have already been mentioned:
1. It may be more worthwhile to do Roth conversions if you are temporarily in the 15% bracket.
2. State tax considerations may trump federal advantages (and may favor 1).
3. In the AMT your LTCG rate ain't that great.
4. If you have carryforward losses realizing gains will nix those.
5. Most investors shouldn't have big unrealized gains after the last decade (unless they were smart and harvested losses in late 2008/early 2009, in which case see 4.
6. Rates may not go up next year.
7. Step up basis might be worth waiting for in estate planning.
8. If you're in an AGI-based phaseout your LTCG rate may be much higher than nominal.

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Re: Should most people sell stock this year for lower tax ra

Post by 555 » Sat Jan 07, 2012 1:18 pm

Good list Bob's not my name. I'll add one.

9. Consider the effect of extra income on all these phaseouts.
"Income Tax Issues: How do phaseouts of tax provisions affect taxpayers?"
http://www.taxpolicycenter.org/briefing ... seouts.cfm

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Re: Should most people sell stock this year for lower tax ra

Post by White Coat Investor » Sat Jan 07, 2012 1:36 pm

Most? No way. Many people will donate their shares to charity or get a step-up in basis at death. Many people won't sell their shares for decades, and who knows what tax rates will be then. I wouldn't sell before I needed to sell for another reason. In fact, I don't think I've ever sold a stock for a gain in a taxable account and I don't plan to do so for a long time.
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Re: Should most people sell stock this year for lower tax ra

Post by FinanceGeek » Sat Jan 07, 2012 2:02 pm

I have large carryforward losses from 2008/2009 - their value rises with capital gain taxation rates - no point using them up in a low rate environment :D

But, if I didn't have carryforward losses, I would reset the basis on positions that had unrealized gains to the extent I could do so at the 0% rate.

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Re: Should most people sell stock this year for lower tax ra

Post by Bob's not my name » Sat Jan 07, 2012 2:43 pm

Bob's not my name wrote:8. If you're in an AGI-based phaseout your LTCG rate may be much higher than nominal.
555 wrote:9. Consider the effect of extra income on all these phaseouts.
"Income Tax Issues: How do phaseouts of tax provisions affect taxpayers?"
http://www.taxpolicycenter.org/briefing ... seouts.cfm
Same thing :)

If you're in a phaseout your LTCG rate could be huge, even hundreds of percent in certain small increments.

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Re: Should most people sell stock this year for lower tax ra

Post by 555 » Sat Jan 07, 2012 3:30 pm

Bob's not my name wrote:
Bob's not my name wrote:8. If you're in an AGI-based phaseout your LTCG rate may be much higher than nominal.
555 wrote:9. Consider the effect of extra income on all these phaseouts.
"Income Tax Issues: How do phaseouts of tax provisions affect taxpayers?"
http://www.taxpolicycenter.org/briefing ... seouts.cfm
Same thing :)

If you're in a phaseout your LTCG rate could be huge, even hundreds of percent in certain small increments.
Fair enough. Though not all phaseouts are AGI-based and in some cases the marginal rate is infinite, i.e. there is a jump discontinuity in your tax as a function of income.

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Re: Should most people sell stock this year for lower tax ra

Post by Bob's not my name » Sat Jan 07, 2012 4:30 pm

555 wrote:Though not all phaseouts are AGI-based and in some cases the marginal rate is infinite, i.e. there is a jump discontinuity in your tax as a function of income.
Yes, that's what I meant by hundreds of percent in certain small increments. I know some like the Education tuition and fees deduction have abrupt thresholds, but it's hard to get to infinity unless the denominator is actually zero. Presumably you're not deciding about gain harvesting in increments of one dollar (indeed, it's hard to time the market that tight). With that deduction, for example, an extra hundred dollars of AGI could cost you a deduction worth $500.

What's an example of a phaseout not based on AGI? I like the Tax Policy Center's summary; I use it all the time to check for hazards in posters' portfolio review requests. I just noticed that it doesn't actually label the income column AGI or MAGI.

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Re: Should most people sell stock this year for lower tax ra

Post by 555 » Sat Jan 07, 2012 4:43 pm

Bob's not my name wrote:What's an example of a phaseout not based on AGI? I like the Tax Policy Center's summary; I use it all the time to check for hazards in posters' portfolio review requests. I just noticed that it doesn't actually label the income column AGI or MAGI.
Earned income credit cuts out if you have too much investment income (about $3100).
Foreign tax credit has abrupt jumps where you have to switch from one formula to another.
These jumps can be a few thousand dollars. I've played with tax software and changed a line by one dollar and seen tax jump by a few thousand.

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Re: Should most people sell stock this year for lower tax ra

Post by Bob's not my name » Sat Jan 07, 2012 4:55 pm

555 wrote:
Bob's not my name wrote:What's an example of a phaseout not based on AGI?
Earned income credit cuts out if you have too much investment income (about $3100).
Wow. That's a really good reason for someone in a low bracket not to tax gain harvest.

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Re: Should most people sell stock this year for lower tax ra

Post by FinanceGeek » Sat Jan 07, 2012 5:30 pm

Two more wrinkles when planning realization of capital gains over the next few years:
  • the 3.8% surtax on capital gains that will begin in 2013 for those with higher income.
  • you want to talk phaseouts - here's a biggie. The health care reform act will produce a "cliff" marginal rate situation due to the health insurance premium subsidy system phasing out at 400% of FPL. At a dollar under 400% of FPL your health insurance premiums are limited to a certain percentage of your income, a dollar more in income, the sky's the limit.
Neither factor was mentioned in the wiki article cited earlier in this thread.

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Re: Should most people sell stock this year for lower tax ra

Post by Bob's not my name » Sat Jan 07, 2012 5:37 pm

Good points. This thread turned out way better than this one: http://www.bogleheads.org/forum/viewtop ... st=1263638

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Re: Should most people sell stock this year for lower tax ra

Post by Muchtolearn » Sat Jan 07, 2012 8:52 pm

FinanceGeek wrote:Two more wrinkles when planning realization of capital gains over the next few years:
  • the 3.8% surtax on capital gains that will begin in 2013 for those with higher income.
  • you want to talk phaseouts - here's a biggie. The health care reform act will produce a "cliff" marginal rate situation due to the health insurance premium subsidy system phasing out at 400% of FPL. At a dollar under 400% of FPL your health insurance premiums are limited to a certain percentage of your income, a dollar more in income, the sky's the limit.
Neither factor was mentioned in the wiki article cited earlier in this thread.
Finance geek,
This one scares me. It may change conventional wisdom about stock funds in taxable space. It is not just cap gains. The 3.8% is on all investment income. And if dividend tax goes back to pre-Bush (39.6%) and you add in a high tax state, you are over 50%. Plus phase out of exemptions. It won't change in 2012, nothing will. WIll have to wait until 2013 to see if things change.

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Re: Should most people sell stock this year for lower tax ra

Post by wlpotts » Sun Jan 08, 2012 3:03 am

FinanceGeek wrote:Two more wrinkles when planning realization of capital gains over the next few years:
  • the 3.8% surtax on capital gains that will begin in 2013 for those with higher income.
  • you want to talk phaseouts - here's a biggie. The health care reform act will produce a "cliff" marginal rate situation due to the health insurance premium subsidy system phasing out at 400% of FPL. At a dollar under 400% of FPL your health insurance premiums are limited to a certain percentage of your income, a dollar more in income, the sky's the limit.
Neither factor was mentioned in the wiki article cited earlier in this thread.
I regret my ignorance, but I am what I am. The poster FinanceGeek referred to the acronym "FPL" in highlighted text above. I looked up this acronym/abbreviation and came upon a variety of references. http://www.acronymfinder.com/FPL.html/

I'm confused as to what is being referred to with the above topic. Is this referencing FPL= Federal Poverty Level? Can someone provide clarity?

Thank you.

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Re: Should most people sell stock this year for lower tax ra

Post by Mrs.Feeley » Sun Jan 08, 2012 3:24 am

We have some Janus funds and Microsoft stock that we purchased 15-20 years ago in taxable accounts. We're considering selling both and paying the capital gains while the tax rates are low and our income is down. We'll have some tax-loss harvesting from prior years, still we'll probably have some tax bill. Plus the prospect of selling is scarey; several financial advisors we've talked to over the past few years have adamantly advised us not to consider selling either the Janus or Microsoft holdings. Nonetheless it's something we're seriously considering. We're in our early 50s and (hopefully) years from retirement. We're thinking pay the (low) gains tax now and hopefully the money will do better elsewhere. Although maybe we should take the advisors' advice and not even consider it?

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Re: Should most people sell stock this year for lower tax ra

Post by Bob's not my name » Sun Jan 08, 2012 4:21 am

The prospect of holding is scary. Obviously unloading a significant holding in an individual stock and high expense managed funds is good boglehead practice. You have a math exercise to look at how much you can sell at 0% federal tax, including the lost opportunity to use your carryforward losses against ordinary income rather than against LTCG. You don't have to sell it all in 2012, and you don't have to sell it all at the beginning of 2012 -- you can wait until December to both have firmer numbers on your income situation and a better view (but not necessarily a good view) of what might happen to the tax code in 2013. If you have dependent kids, consider gifting appreciated stock to them and having them sell $1,900 of gains each tax year (that's the kiddie tax limit, but they can also sell more than that and pay tax at your nominal rate, which may be better than your effective marginal rate if you're in an AGI-based phaseout).

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Re: Should most people sell stock this year for lower tax ra

Post by JW-Retired » Sun Jan 08, 2012 11:00 am

MrsFeely wrote:We have some Janus funds and Microsoft stock that we purchased 15-20 years ago in taxable accounts. We're considering selling both and paying the capital gains while the tax rates are low and our income is down. We'll have some tax-loss harvesting from prior years, still we'll probably have some tax bill. Plus the prospect of selling is scarey; several financial advisors we've talked to over the past few years have adamantly advised us not to consider selling either the Janus or Microsoft holdings.
I'm thinking there must be more to this story if the several advisors are "adamant"? Why? Can you tell us how much of your nest egg this represents? What are the ERs of the funds? Is Microsoft your only individual stock or do you have some diversification? What cap gain rate(s) will you pay on the gains now while your income is down? What rate might you pay when retired?
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Re: Should most people sell stock this year for lower tax ra

Post by Bongleur » Sun Jan 08, 2012 4:32 pm

>These jumps can be a few thousand dollars. I've played with tax software and changed a line by one dollar and seen tax jump by a few thousand.

This is the sort of incalculable complexity which makes me want to convert everything into physical gold and do some business at the local coin store whenever I need greenbacks.
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Re: Should most people sell stock this year for lower tax ra

Post by Bob's not my name » Sun Jan 08, 2012 4:45 pm

Yeah, because gold is tax-exempt :shock:

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Re: Should most people sell stock this year for lower tax ra

Post by FinanceGeek » Sun Jan 08, 2012 7:47 pm

wlpotts wrote:
FinanceGeek wrote:Two more wrinkles when planning realization of capital gains over the next few years:
  • the 3.8% surtax on capital gains that will begin in 2013 for those with higher income.
  • you want to talk phaseouts - here's a biggie. The health care reform act will produce a "cliff" marginal rate situation due to the health insurance premium subsidy system phasing out at 400% of FPL. At a dollar under 400% of FPL your health insurance premiums are limited to a certain percentage of your income, a dollar more in income, the sky's the limit.
Neither factor was mentioned in the wiki article cited earlier in this thread.
I regret my ignorance, but I am what I am. The poster FinanceGeek referred to the acronym "FPL" in highlighted text above. I looked up this acronym/abbreviation and came upon a variety of references. http://www.acronymfinder.com/FPL.html/

I'm confused as to what is being referred to with the above topic. Is this referencing FPL= Federal Poverty Level? Can someone provide clarity?

Thank you.

wlpotts
Yes, FPL = Federal Poverty Level. The new healthcare system will operate a system of subsidies for purchasing health insurance - the subsidies phase out when one's family income exceeds 400% of the Federal Poverty Level.

Without getting into politics you can imagine the perverse incentives that such a system might create with respect to choosing to get (or stay) married, choosing to retire early, managing one's income to stay within certain bands, etc.

Here's a link that explains a bit:

http://www.kaiserhealthnews.org/Stories ... eform.aspx

Here's an example that I think explains the concern I'm highlighting. Suppose you are a family of 4 and you earn $88199, e.g. $1 under the threshold for phasing out subsidies. You want to purchase health insurance that costs $1500/month for your family, e.g. $18000 / year. BTW, that's an approximate cost of COBRA for family coverage PPO plans operated by megacorps.

Because your income is $1 under 400% of the FPL, you only have to pay 9.5% of your income, e.g. $8,379.

Now imagine you earn an extra dollar of income. You lose eligibility for the subsidies. You have to pay the entire $18000. In other words, that extra dollar of income cost you $9621 in lost subsidies.

Pretty hefty marginal rate eh? And by the way, as long as you remain under 400% of FPL, you might as well buy the highest cost/benefit health insurance plan you can right? It doesn't cost you any more...
Last edited by FinanceGeek on Sun Jan 08, 2012 8:12 pm, edited 2 times in total.

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Re: Should most people sell stock this year for lower tax ra

Post by FinanceGeek » Sun Jan 08, 2012 7:54 pm

Muchtolearn wrote:
FinanceGeek wrote:Two more wrinkles when planning realization of capital gains over the next few years:
  • the 3.8% surtax on capital gains that will begin in 2013 for those with higher income.
  • you want to talk phaseouts - here's a biggie. The health care reform act will produce a "cliff" marginal rate situation due to the health insurance premium subsidy system phasing out at 400% of FPL. At a dollar under 400% of FPL your health insurance premiums are limited to a certain percentage of your income, a dollar more in income, the sky's the limit.
Neither factor was mentioned in the wiki article cited earlier in this thread.
Finance geek,
This one scares me. It may change conventional wisdom about stock funds in taxable space. It is not just cap gains. The 3.8% is on all investment income. And if dividend tax goes back to pre-Bush (39.6%) and you add in a high tax state, you are over 50%. Plus phase out of exemptions. It won't change in 2012, nothing will. WIll have to wait until 2013 to see if things change.
If dividends lose preferential rates, I would expect that there would be more pressure on companies not to issue them - instead re-investing the funds and (hopefully) leading to higher share prices down the road. In other words, the Berkshire Hathaway model. In which case the conventional wisdom doesn't really change.

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Re: Should most people sell stock this year for lower tax ra

Post by Mrs.Feeley » Sun Jan 08, 2012 11:56 pm

JW Nearly Retired wrote:
MrsFeely wrote:We have some Janus funds and Microsoft stock that we purchased 15-20 years ago in taxable accounts. We're considering selling both and paying the capital gains while the tax rates are low and our income is down. We'll have some tax-loss harvesting from prior years, still we'll probably have some tax bill. Plus the prospect of selling is scarey; several financial advisors we've talked to over the past few years have adamantly advised us not to consider selling either the Janus or Microsoft holdings.
I'm thinking there must be more to this story if the several advisors are "adamant"? Why? Can you tell us how much of your nest egg this represents? What are the ERs of the funds? Is Microsoft your only individual stock or do you have some diversification? What cap gain rate(s) will you pay on the gains now while your income is down? What rate might you pay when retired?
JW

We were with a financial advisor a few years back. Since Janus fund prices were at a 20-year high at the time, and our income was at a 20-year low, we wanted to dump our Janus holdings, includingTwenty and Contra, to enjoy the low-tax bracket 0% capital gains tax. He was horrified by the prospect, arguing that these funds had a bright and boundless future and we'd be fools to unload them and put the proceeds into (gasp!) TIPS! We sold a chunk of the Janus holdings anyway. Shortly after that two other advisors took over our account and they were similarly gunho about Janus funds, although they later changed their tune.

According to Morningstar 10K planted in either fund 10 years ago would now be worth $16K, although looking at our statements I'm not confident that is true. They have high fees and they're also highly tax inefficient.

Looking at our statements and spreadsheets, we'd have about a $35K total LT capital gains if we sold the Janus funds. (Yow! Didn't realize it was that much.) The funds represent 6 percent of our portfolio.

As for the Microsoft stock, as you may know the price of MSFT has flat-lined for the past ten years. Dividends wouldn't buy you a monthly metro pass. All the advisors we spoke with thought that's just a dynamite, super-fantastic stock to hold because you know any minute now it's going to shoot sky-high. Even though the price has flat-lined for ten years. The stock represents 3 percent of our portfolio. I think we'd have about $16K LT capital gains if we sold it.

Otherwise everything else in our portfolio is Bogle-fied with index funds and laddered bank CDs. As for overall allocation my husband is happy with the current stock allocation while I would prefer more in the Total Bond Index, but at the moment that's not a big issue. He's an index fund devotee, but he's not keen on selling the MSFT stock.

Our 2012 AGI will probably be on the border between the 15 and 25 percent brackets. I'm lumping two years' worth of real estate tax payments and two years' worth of charitable donations into 2012 to bring down our AGI, but I still think it will end up on the border. One would assume any taxes on capital gains would likely end up in the 25 percent bracket--which will be 15 percent in 2012 and assumedly 20 percent in 2013. I'm not sure whether I'll be able to whittle our AGI down enough so that we're not paying federal capital gains on any sales at all. Also our state taxes LT capital gains as regular income at 6.75 percent with a 30 percent deduction. That's a sobering chunk.

So that's the lay of the land. Any advice would be most appreciated! :) Looking at the spreadsheets and statements I'm back to thinking "Hmm... Perhaps inertia is the best strategy to contine."

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Re: Should most people sell stock this year for lower tax ra

Post by Noobvestor » Mon Jan 09, 2012 12:03 am

Isn't next year's tax rate always supposed to be higher, and always gets pushed back by new legislation?
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Re: Should most people sell stock this year for lower tax ra

Post by JW-Retired » Mon Jan 09, 2012 12:46 am

Mrs.Feely wrote:Looking at our statements and spreadsheets, we'd have about a $35K total LT capital gains if we sold the Janus funds. (Yow! Didn't realize it was that much.) The funds represent 6 percent of our portfolio.

As for the Microsoft stock, as you may know the price of MSFT has flat-lined for the past ten years. Dividends wouldn't buy you a monthly metro pass. All the advisors we spoke with thought that's just a dynamite, super-fantastic stock to hold because you know any minute now it's going to shoot sky-high. Even though the price has flat-lined for ten years. The stock represents 3 percent of our portfolio. I think we'd have about $16K LT capital gains if we sold it.
Mrs. Feely,
Since you say 91% of your portfolio already has a Boglehead character, I would also be in no hurry to pay a lot of taxes to tidy up the other 9%. I have a couple of holdings like yours and I'm just going to sit with them and hopefully leave them to kids.
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Re: Should most people sell stock this year for lower tax ra

Post by Mrs.Feeley » Mon Jan 09, 2012 1:16 am

JW Nearly Retired wrote:
Mrs.Feely wrote:Looking at our statements and spreadsheets, we'd have about a $35K total LT capital gains if we sold the Janus funds. (Yow! Didn't realize it was that much.) The funds represent 6 percent of our portfolio.

As for the Microsoft stock, as you may know the price of MSFT has flat-lined for the past ten years. Dividends wouldn't buy you a monthly metro pass. All the advisors we spoke with thought that's just a dynamite, super-fantastic stock to hold because you know any minute now it's going to shoot sky-high. Even though the price has flat-lined for ten years. The stock represents 3 percent of our portfolio. I think we'd have about $16K LT capital gains if we sold it.
Mrs. Feely,
Since you say 91% of your portfolio already has a Boglehead character, I would also be in no hurry to pay a lot of taxes to tidy up the other 9%. I have a couple of holdings like yours and I'm just going to sit with them and hopefully leave them to kids.
JW
Ooooo! Thank you for telling me this! Then it's o.k. to just let this sit in the file cabinet and not fret about it. That advice comes as a great relief. One less thing to puzzle over in 2012. I was just going through past tax returns hunting for unused losses to carry over to 2012--surely we had some, but apparently not. Thank you! :beer

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Re: Should most people sell stock this year for lower tax ra

Post by Bob's not my name » Mon Jan 09, 2012 4:10 am

Mrs.Feeley wrote:Our 2012 AGI will probably be on the border between the 15 and 25 percent brackets. I'm lumping two years' worth of real estate tax payments and two years' worth of charitable donations into 2012 to bring down our AGI
1. You mean taxable income, not AGI. Personal exemptions and itemized deductions like property taxes and donations are subtracted from your AGI to get your taxable income. Your AGI is at the bottom of the first page of your 1040. For most people it's just your gross income minus your 401k contributions, pre-tax insurance premiums, and deductible TIRA contributions.
2. You should be donating the appreciated stock, not cash. This is a great deal. Just make a decade's worth of donations this year, all stock. See http://www.bogleheads.org/wiki/Donating ... Securities
3. I still think having 9% in individual stock and high cost funds is something you should address. Make sure you use 2012 numbers to determine what bracket you're in. I like Mike's handy reference: http://www.obliviousinvestor.com/2012-tax-brackets/

555
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Re: Should most people sell stock this year for lower tax ra

Post by 555 » Mon Jan 09, 2012 4:35 am

Mrs.Feeley wrote:I was just going through past tax returns hunting for unused losses to carry over to 2012--surely we had some, but apparently not.
You don't have carryover losses? That's great! That puts you in an ideal situation to tax gain harvest. (But read thread for many caveats.)

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Mrs.Feeley
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Re: Should most people sell stock this year for lower tax ra

Post by Mrs.Feeley » Mon Jan 09, 2012 4:39 am

Bob's not my name wrote:
Mrs.Feeley wrote:Our 2012 AGI will probably be on the border between the 15 and 25 percent brackets. I'm lumping two years' worth of real estate tax payments and two years' worth of charitable donations into 2012 to bring down our AGI
1. You mean taxable income, not AGI. Personal exemptions and itemized deductions like property taxes and donations are subtracted from your AGI to get your taxable income. Your AGI is at the bottom of the first page of your 1040. For most people it's just your gross income minus your 401k contributions, pre-tax insurance premiums, and deductible TIRA contributions.
2. You should be donating the appreciated stock, not cash. This is a great deal. Just make a decade's worth of donations this year, all stock. See http://www.bogleheads.org/wiki/Donating ... Securities
3. I still think having 9% in individual stock and high cost funds is something you should address. Make sure you use 2012 numbers to determine what bracket you're in. I like Mike's handy reference: http://www.obliviousinvestor.com/2012-tax-brackets/
Wow! O.k., I'm looking at our 2010 taxes and our "taxable" income (line 43) was only $52K while our AGI was considerably higher. I had no idea that AGI was not the number used to determine tax bracket; I just type the numbers into TurboTax. Wow. So that means that this year we COULD sell about $20K worth of long-term capital gains while staying within the 0 percent capital gains tax range! And if we donated stock to our favorite charity rather than making our usual cash donation, we could move even more out of Janus/MSFT without incurring tax liability. What a great idea! Thank you for the AGI clarification and the stock-donating tip! This certainly changes things. That's why I love this forum...truly, we would not get this sort of advice anywhere else. Thank you!

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Mrs.Feeley
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Re: Should most people sell stock this year for lower tax ra

Post by Mrs.Feeley » Mon Jan 09, 2012 4:42 am

555 wrote:
Mrs.Feeley wrote:I was just going through past tax returns hunting for unused losses to carry over to 2012--surely we had some, but apparently not.
You don't have carryover losses? That's great! That puts you in an ideal situation to tax gain harvest. (But read thread for many caveats.)
Umm... Tax gain harvest?? (slowly going into panic mode here at the thought of another important consideration I never even knew existed until now :oops: ) O.k., I'm off to the wiki.... Thank you for steering me in the proper direction!

Bob's not my name
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Re: Should most people sell stock this year for lower tax ra

Post by Bob's not my name » Mon Jan 09, 2012 4:56 am

Tax gain harvesting just means using the 0% LTCG rate, which is exactly what you're doing and what this thread is about.

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Re: Should most people sell stock this year for lower tax ra

Post by Bongleur » Mon Jan 09, 2012 1:25 pm

JW Nearly Retired wrote: Since you say 91% of your portfolio already has a Boglehead character, I would also be in no hurry to pay a lot of taxes to tidy up the other 9%. I have a couple of holdings like yours and I'm just going to sit with them and hopefully leave them to kids.
JW
Just kicking the can down the road, eh ? :lol
Seeking Iso-Elasticity. | Tax Loss Harvesting is an Asset Class. | A well-planned presentation creates a sense of urgency. If the prospect fails to act now, he will risk a loss of some sort.

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Re: Should most people sell stock this year for lower tax ra

Post by Grasshopper » Mon Jan 09, 2012 4:57 pm

I retired 7 years ago at age 54, except for some short term bond investments I am not taking a lot of gains or dividends. I am living out of my taxable account and in the 10% fed bracket. I have some large capital gains that will be harvested this year. Gee it seems like everyone here would rather take a loss than take home a pot of gold.

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