Thanks everyone! I have another question.
This is the last year my taxable income will be under the 39k threshold. I will earn about 48k this year, so after the standard deduction, my taxable income should come down to around 36k. (Is this a correct assumption?)
If that's the case, I should technically be able to just sell OTCAX and put it in VTSAX tax free? Since 0% capital gains tax is paid on $0-$39,375 of taxable income?
Are you tax for selling and buying another stock?
This is the last year my income will be this low so I should sell it this year?
Please let me know your thoughts, and if I am assuming incorrectly or making bad calls. I'm basing my information off of: https://www.gocurrycracker.com/never-pay-taxes-again/
In order:
1. Yes, assuming you are single and have no other deductions or adjustments to income.
2. Not really, and no. Your capital gains stacks on top of your taxable income and are taxed accordingly. The first $9,700 of your ordinary income will be taxed at 10%. Assuming you earn less than the $39,475, the rest of your ordinary income will be taxed at 12%. Then any capital gains above that and up to $39,275 (yes, the numbers are slightly different - it's a quirk in the new tax laws) will be taxed at 0%. Then any capital gains above that will be taxed at 15%.
3. You're taxed on the capital gain (or loss) when you sell a stock. You are not taxed when you buy a stock.
4. Whether to sell depends on a lot of things - how much you want to get rid of it, how much you have in the investment, what the rest of your financial picture looks like. The 15% long term capital gains tax bracket goes from $39,275 to $434,550, although there is a separate and additional 3.8% NIIT tax that kicks in at $200K AGI. It is possible that any sale you make will be in the 15% bracket for a while. Another thing some people do is sell it over years to spread out the tax burden and avoid getting into higher brackets.
Hi, thanks for the detailed information!
I have a little over 70k in it, so looks like even if I get some out, I wouldn't be able to get it all out this year.
Maybe I can sell it and buy a similar stock with a lower expense ratio that would be considered a "wash sale"? Is that an option and how would I figure out which other stock to pick?
If there are any other known loopholes or ways of approaching the problem, please let me know!
Extra info that may help or may just be oversharing:
The rest of my NW is a bit over 60k, of about 1/3 is in tax advantaged accounts. In all around 135k.
I do want to FIRE in 5 - 13 years, so increasing my income is really important, and I can do so this year if I so choose. (Not astronomically though haha)
Not sure how much having this stock impacts my FIRE goals, especially considering it's taxable so I'll probably get to it first.
My FIRE # range is 600k - 1.2 mil. It's hard to say because I'm fairly young and in the future I will be getting married, moving and etc so I can't know exactly. The lower end of the range will be more than enough to cover my current living expenses.