Tax Loss Harvesting combined with capital gains gifting?

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Hulk
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Tax Loss Harvesting combined with capital gains gifting?

Post by Hulk » Sun Oct 18, 2015 9:20 pm

I think I understand the benefit of tax loss harvesting in a taxable account. From what I understand, you can even pay an ER of around 0.3 for some companies algorithm to do this for you automatically/daily.

I also have recently become familiar with the concept of gifting your capital gains. If you are going to give money to a 501c3 anyway, you should give away capital gains , then use the cash you had ear marked for charity to replace your gifted equities, essentially flushing out your capital gains. makes sense. Sell your losses, and replace (TLH) and give away your gains, and replace with new money. great

Is there a good way to combine these to concepts with one logical way or program? For instance, if I know I want to tithe 10% of my income and want to flush out, say, 20k of capital gains can I somehow combine that logically with TLH strategy in an automated way?

Also, when you "flush out capital gains" how is that separated from the principal investment? Do you have to give the whole thing away or is it possible to just give away the capital gains and keep the principal?

Thanks so much!!

DSInvestor
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Re: Tax Loss Harvesting combined with capital gains gifting?

Post by DSInvestor » Sun Oct 18, 2015 9:23 pm

Boglehead wiki page on Donating appreciated securities:
https://www.bogleheads.org/wiki/Donatin ... securities
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livesoft
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Re: Tax Loss Harvesting combined with capital gains gifting?

Post by livesoft » Sun Oct 18, 2015 10:41 pm

Automated way? No.

I do not see any benefit to automating this. I suppose if you have the rest of your life automated: automated bill paying, automated filling up the car with gas, automated maid service, automated cooking at home, automated bathing, then it might make sense to automate this.
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nyblitz
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Re: Tax Loss Harvesting combined with capital gains gifting?

Post by nyblitz » Sun Oct 18, 2015 11:12 pm

I don't know of a way to automate this.

Some advanced topics to research, which may really help are donor advised funds and bunching of deductions.

Livesoft has really helped me with this over the years - a search with his name should be high yield.

Btw, thanks, Livesoft!

Hulk
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Re: Tax Loss Harvesting combined with capital gains gifting?

Post by Hulk » Mon Oct 19, 2015 12:13 pm

livesoft wrote:Automated way? No.

I do not see any benefit to automating this. I suppose if you have the rest of your life automated: automated bill paying, automated filling up the car with gas, automated maid service, automated cooking at home, automated bathing, then it might make sense to automate this.
There are more opportunities for TLH when done daily by a computer algorithm with a company like Betterment or Wealthfront. Plus I don't want to be jacking with it all the time. I don't know about you, but I've got better things to do with my time. I'd rather get back to work and life than piddling with this everyday, I'm not that bored. Just wanting to combine a TLH strategy when the market is down with giving when the market is up, again because done in a daily automated way would provide more opportunities.

small_index
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Re: Tax Loss Harvesting combined with capital gains gifting?

Post by small_index » Mon Oct 19, 2015 1:09 pm

You could time it yourself using a donor advised fund.
https://www.bogleheads.org/wiki/Donor_advised_fund

You could donate the $5,000 to setup the fund when times are good and income is high. You take the donation immediately, and can decide over time who receives the donations (which can be made anonymous). Some charities aren't setup to receive mutual funds, so the donor advised fund also converts those assets into dollar donations.

livesoft
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Re: Tax Loss Harvesting combined with capital gains gifting?

Post by livesoft » Mon Oct 19, 2015 2:46 pm

Hulk wrote:There are more opportunities for TLH when done daily by a computer algorithm with a company like Betterment or Wealthfront. Plus I don't want to be jacking with it all the time. I don't know about you, but I've got better things to do with my time. I'd rather get back to work and life than piddling with this everyday, I'm not that bored. Just wanting to combine a TLH strategy when the market is down with giving when the market is up, again because done in a daily automated way would provide more opportunities.
I think I am pretty good at tax loss harvesting. There are not daily opportunities to TLH. One can look every day if they want to and most days of the year one will see that there are not any TLH opportunities. The reason for this should be intuitively obvious to the most casual observer:
1. One does not buy shares every day, and
2. The stock market does not go down all the time, but often goes up.

Do not confuse looking daily with a TLH opportunity. Indeed, I would state that one should only have to TLH a few times per year: At the lowest price of the year for the investment that one has a loss in.

The daily TLH thing is just marketing message from Betterment and Wealthfront and not reality. I tend to be very skeptical of marketing messages.
Last edited by livesoft on Mon Oct 19, 2015 3:08 pm, edited 1 time in total.
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dbCooperAir
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Re: Tax Loss Harvesting combined with capital gains gifting?

Post by dbCooperAir » Mon Oct 19, 2015 2:55 pm

livesoft wrote:Automated way? No.

I do not see any benefit to automating this. I suppose if you have the rest of your life automated: automated bill paying, automated filling up the car with gas, automated maid service, automated cooking at home, automated bathing, then it might make sense to automate this.
Can I pick just any two?

I especially like the automated gas filling, I do remember when it was somewhat automated I guess!
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grabiner
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Re: Tax Loss Harvesting combined with capital gains gifting?

Post by grabiner » Tue Oct 20, 2015 10:00 pm

There is no automated way to combine the two strategies, but they work together well. Tax loss harvesting gets rid of high-basis stock, replacing it with low-basis stock while giving you a valuable capital loss. Gifting appreciated securities gets rid of an unrealized gain by removing your low-basis stock. Thus, if you harvest a loss, and then use those shares for a charitable donation, you get the upside of the harvest and eliminate the downside.
Hulk wrote:Also, when you "flush out capital gains" how is that separated from the principal investment? Do you have to give the whole thing away or is it possible to just give away the capital gains and keep the principal?
You have to give the whole share away, because the capital gains are part of the share. If you bought 100 shares for $20 (more than a year ago, so that any gain would be long-term) and they are now worth $60, you can donate the 60 shares to a charity. You will get a deduction for the full $6000, and never pay tax on the $4000 capital gain. The charity, since it is tax-exempt, doesn't care about the capital gain.
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