Order of selling equities in taxable account

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voyageur9
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Joined: Fri Aug 10, 2018 12:42 pm

Order of selling equities in taxable account

Post by voyageur9 » Fri Aug 10, 2018 1:05 pm

Long-time lurker and learner. So I want to first express my gratitude to all those -- especially the regulars -- who carefully and patiently answer so many questions.

Here's mine.
I took me some decades to (painfully) learn the lesson that buying individual equities was stupid. I did learn and we are entirely in indexes in tax-advantaged accounts but about 25% of the value of our jointly-held taxable brokerage account remains in individual equities. I've owned then all for 20 years or more, some have done better than others. Collectively they are worth about $750,000 of which roughly half is capital gain.

We (I'm 63, my spouse is 59) are approaching the decade before RMDs and SocSec and will soon be reliant on taxable brokerage account sales as we both end salaried employment.

Question: In what order should equities be sold? (My instinct is to sell those with the least appreciation first so minimize the tax bite but there may be considerations I have missed.)

Many thanks in advance
Last edited by voyageur9 on Fri Aug 10, 2018 3:07 pm, edited 2 times in total.

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Order of selling equities in taxable account

Post by livesoft » Fri Aug 10, 2018 1:14 pm

voyageur9 wrote:
Fri Aug 10, 2018 1:05 pm
SQuestion: In what order should equities be sold? (My instinct is to sel those with the least appreciation first so minimize the tax bite but there may be considerations I have missed.)
That's what I would do with the added note that long-term vs short-term held shares have different tax rates.

1. Stop any automated dividend reinvestment.

2. Sell losers first.

3. Consider donating shares with highest percentage gains to your Donor-Advised Fund and then to other charities.
Wiki This signature message sponsored by sscritic: Learn to fish.

rgs92
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Re: Order of selling equities in taxable account

Post by rgs92 » Fri Aug 10, 2018 1:25 pm

I'm curious why you seem to feel that buying these stocks was a mistake. Thank you and good luck.
As for what to sell, I would think I would try to decide what to sell based on what stocks you think are good or bad (since you already own them), as that would be much more significant than taxes paid on gains.

Of course, try and get long-term capital gains when you pick shares to sell. If none of the gains are short term, I would just sell any shares and not worry, as it's just gets too confusing.

I think the brokerage will do this when you sell (to your benefit) when they issue the 1099. I would just let them do it.

voyageur9
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Joined: Fri Aug 10, 2018 12:42 pm

Re: Order of selling equities in taxable account

Post by voyageur9 » Fri Aug 10, 2018 2:02 pm

rgs92 wrote:
Fri Aug 10, 2018 1:25 pm
I'm curious why you seem to feel that buying these stocks was a mistake.
Some weren't and have significantly outperformed the market. Some way underperformed. And a couple are dead. Overall, I expensively taught myself the lesson that I could/should have learned with a little reading when I was in my 20s; that nobody beats the market long-term.

annebert
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Joined: Fri Jul 20, 2018 5:39 pm

Re: Order of selling equities in taxable account

Post by annebert » Fri Aug 10, 2018 3:20 pm

I also think you're beating yourself up unnecessarily. Actually, holding stocks long term is the best way to profit from stocks. Notice I didn't say "beat the market" - but you probably came out ahead overall. Definitely if you have stocks with an actual loss, sell those. As others have advised, stop reinvesting dividends for a year and a day before selling, so you can pay long-term gains. If any of your stocks pay decent dividends, you might want to hang on to them, start taking the dividends, and leave them to your kids, who will only pay capital gains on the step-up. My father did that and it worked out for us!

sixty40
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Re: Order of selling equities in taxable account

Post by sixty40 » Fri Aug 10, 2018 5:23 pm

I think the order is:
1. short term loss.
2. long term loss
3. long term gains, lowest first.
4. short term gains, lowest first.

Also I would suggest using a Limited order and not Market order, just in case something weird happens from when you check the price to when you hit sell.

stan1
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Joined: Mon Oct 08, 2007 4:35 pm

Re: Order of selling equities in taxable account

Post by stan1 » Fri Aug 10, 2018 6:01 pm

I would also use improved diversification as a factor in selling. For example if $500k of the $750K is in Apple I'd be trying to reduce my exposure there.

Fishing50
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Re: Order of selling equities in taxable account

Post by Fishing50 » Sat Aug 11, 2018 4:36 am

Make sure to max out the 12% tax bracket for 0% capital gains tax. :beer
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

informal guide
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Re: Order of selling equities in taxable account

Post by informal guide » Sat Aug 11, 2018 7:41 am

If your stocks are at Vanguard, or if you track them as an outside account at Vanguard, I'd suggest looking at the Stocks section of Vanguard's portfolio watch, for your industry diversification versus the market. I hold a number of individual stocks in my portfolio, as well as some active funds. I discovered my portfolio to be significantly overweight in some industry groups - -that is where I am selling, using the minimizing capital gains approach only after I choose the stocks I am selling.

NoblesvilleIN
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Location: Noblesville IN

Re: Order of selling equities in taxable account

Post by NoblesvilleIN » Sat Aug 11, 2018 9:23 am

Since you are under 65, are you planning on using an ACA health plan and trying to get a subsidy? If so, then you might need to sell stocks such that your MAGI keeps you under the "cliff" while providing you additional income. I am in a similar situation (60, wanting to retire at the end of this year) with a large (for me) taxable account 100% in individual stocks. You might want to think about selling stocks that have less appreciation until you reach 65. This way the cost basis isn't taxed, but you still have it to spend. My thought is that next year, I can sell stocks that have a paper loss (luckily, most have a gain) to have cash. Next would be to sell the stocks with lower capital gains. One thing that I am thinking about: My wife is 53 and wants to work for a couple more years. Because of this, we are going to struggle to stay under the "cliff". I am thinking of off-setting some of the capital gains by contributing to her IRA and a spousal IRA for me. I am thinking that the tax deduction for that would help keep us under the MAGI limit for subsidized health care.

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