My partner and I just invested in a few funds (about two months ago), but I'm looking to completely divest from them and move to more ethical alternatives, as I belatedly realised our investments were going into dodgy companies (e.g. private prisons, deforestation, firearms)...I'd like advice on TIMING of selling funds, in terms of tax implications.
What I know so far about taxes
- LT capital gains = held >1 year. Treated differently, tax-wise, than ST cap gains (<1 yr). Taxed at 15% of income tax rate (for now...Biden admin may change this, but unlikely to retroactively apply it).
- ST cap gains are taxed at the same income tax rate.
- Caveat: if have losses, can sell assets and “realise” the loss.
- Use ST loss to offset ST gain (and LT gain ← can carry forward to future years)
- CanNOT use LT loss to offset ST gain
- If ST gain/loss is small, consider selling immediately and reinvesting in new investments
- Illustration: Say sell one asset at $4,000 loss, and another at $1,000 gain. Can use $1,000 from the $4,000 loss to offset the $1,000 gain (netting at zero tax) and use up to $3,000 of the $4,000 loss ($3,000 is the limit) to decrease income by $3,000, thereby decreasing total income tax.
Our investments' ST gains
- My partner's brokerage: $755 net gain
- My brokerage: $492 net gain
- My roth IRA: $422 net gain
If you were me, would you:
- a) Sell now, and eat the cost of being taxed 100% for the ~$1,600 in net gains you acquired? In return, you'd be able to reinvest in more ethical alternatives, and have that investment accrue gains immediately!
- b) Wait a year to sell, in order to be taxed at 15% the rate? This would, however, mean that you wait another 10 months, letting the current investments continue accruing gains, so the 15% rate will be on the bigger pot of gains...
Thank you all in advance for your help! This community has been a lifesaver for me in the past...if there's anything that's unclear, please let me know; I'll clarify any confusion!