Suppose one has $300,000 in taxable gains consisting of stock held a long time.
Realizing the entire $300,000 would result in a large tax bill and higher tax prepayments in the current and the following year as well a higher tax rate and other charges such as Medicare.
So would it be better to only realize $150,000 or $100,000 of capital gains for the current taxable year?
There is the option trying to postpone the capital gains as long as possible at the expense of holding stocks that don't show much future prospects.
It need not result in high estimated tax payments in either the current or
the subsequent year. You can use the safe harbor provision for the current
year, and you can just make sure you pay enough estimates in the subsequent
year to meet the estimated tax requirement - don't use the safe harbor of
last year's income levels for the subsequent year.
The 3.8% Obama tax, may or may not kick in, depending on your overall income
level. If you are above the threshold, realizing the entire gain in one
year wouldn't matter. If not, you could consider spreading it out to remain
below that threshold.
I don't know how the AMT or phase outs are affected - they made the damn tax
code so complex tax planning is pretty difficult. You might want to try
different scenarios using a tax preparation program.
If you wait until you die, the entire taxable capital gain gets wiped out by
a stepped up basis. Of course, you can't spend the money that way, but your
heirs and devisees can. Something to consider if you have one foot on a
Another thing you can do is to fund your charitable giving with the
stock instead of cash. Depending how much you annually give that
could be a drop in the bucket compared to the stock holding, but
it's still something. And consider the use of a donor-advised fund
it's effectively a way to donate stock to charities that aren't set
up to deal with stock donations.
On Friday, August 29, 2014 11:50:02 AM UTC-7, Rich Carreiro wrote:
If you are generally making gifts to charities, and are in the situation described (lots of unrealized capital gains) -- it's a home run to switch to making as many of those gifts out of a donor-advised fund as you can. There are lots of them, ranging from local community foundation funds to the giants like Fidelity's Charitable Gift fund. In my experience, working with these funds is as easy as can be and in addition to getting rid of the capital gains and getting the streamlined tax deduction, they also allow you to do things like anonymous gifts easily.
But that only makes sense if you were already planning on regular charitable gifts. In other words, if you were already making such gifts in cash, stop doing so, donate stock to the fund, then resume making gifts out of the fund.
On Friday, August 29, 2014 4:20:02 AM UTC-10, Ron Peterson wrote:
The lost opportunity due to hanging on to zombie stocks could be a big issue. Maybe near the end of each tax year, an assessment is made whether there can be some bleed down of the worst stock without jacking up your tax bracket or total amount too much. One pitfall that wasn't mentioned is exceeding 150k (adjusted income?) can force an expanded (110%?) safe harbor requirement.
On Friday, August 29, 2014 7:20:02 AM UTC-7, Ron Peterson wrote:
1. Do you have anything better to do with the money?
2. What is the dividend yield calculated on the basis? I have one stock with a 1350% growth currently paying 33% dividends on my basis. While it is no longer growing as fast as in the past, it is good for income.
On Tuesday, September 2, 2014 6:10:02 AM UTC-10, firstname.lastname@example.org wrote:
Why would you calculate yield against the basis? For one thing it is a rubber number not adjusted for inflation. More importantly it ignores huge opportunity costs. Let's see if I get these numbers right on a $1000 initial investment:
$1000 basis * 33% yield = $330 current dividends
$1000 basis * 1350% gain = $1,351,000 current value
$330 current dividends / $1,351,000 current value = 0.025% current yield (!)
What is good about a slow growing stock with 0.025% yield? What if you put it in a fresh, growing stock like WIN just for example:
$1,351,000 current value * 8.7% WIN yield = $117,537 lost potential dividends (!)
Spare me criticism of WIN and it's risks, but it shows the principle...
On Tuesday, September 2, 2014 8:30:02 AM UTC-10, dumbstruck wrote:
Oops, I forgot to shift the decimal 2 places left, although it doesn't affect my point. Strange how cumbersome the use of "% gain" or "% yield" is, where you not only have to keep shifting the decimal back and forth all the time, but sometimes have to add the original value back in.
On Tuesday, September 2, 2014 9:10:02 AM UTC-7, email@example.com wrote:
I think that I can do better on some stocks but mostly on short-term gains.
Most of my stocks aren't high dividend.
I see that my goal should be to keep our joint income below $250,000 and to mostly realize losses and long term gains.
Eventually, I will probably not be able to keep my income below $250,000 and just let my income grow gradually. Of course, a market crash could solve my "problem".
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