Author Topic: I messed up balancing my AGI against cap gains tax and ACA subsidy  (Read 2545 times)

BlueHouse

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welp!  I messed up.  I sold too much stock and racked up capital gains.  I think this will be much more costly (both in capital gains taxes and the affect on my ACA subsidy) than I want to pay.  How can I fix it?  The only way I can think of is to find a capital LOSS.  But how do I find a loss without creating more income? 

I don't think I own anything in any account that is worth less than what I paid for it because I've been buying and holding and stocks are up. 

Last year I reported an AGI of about $43K and received a nice ACA subsidy.  This year, after final dividends, I will probably have an AGI of $60-$65k (and sadly, I wont be able to convert any IRA funds to Roth). 

This feels like a triple whammy against me due to my poor planning.  Is there any way to fix this?

reeshau

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #1 on: December 13, 2024, 10:52:41 AM »
How can I fix it?  The only way I can think of is to find a capital LOSS.  But how do I find a loss without creating more income? 

You don't create any income, if you have a loss.  Income is not equal to the money you receive.  It is the net of what you received minus what you paid.

Quote
I don't think I own anything in any account that is worth less than what I paid for it because I've been buying and holding and stocks are up. 

You don't have to guess; go to your broker's website, and find either unrealized gains/losses or lot details.  You may have specific lots that do have losses, if you were buying regularly.  However, if you were selling funds and using the average cost method, you might not be able to select them on that specific fund.

If you have a lot of lots, or lots with widely differing cost bases, always select lots to sell, and sell the highest cost first.  That delays your capital gains.


secondcor521

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #2 on: December 13, 2024, 02:06:46 PM »
Aside from recognizing capital losses, several common ways to lower AGI are to make deductible traditional IRA contributions, contribute more to work retirement accounts like a 401(k), or contribute to an HSA.  Of course, you have to meet the eligibility requirements for these options.

If none of those work, you should pay attention to the bottom of Form 8962 around Line 28 or so to see if you benefit from the repayment limitations associated with having an actual income higher than your ACA estimated income.  If your AGI is below certain breakpoints, then the amount of ACA subsidy you have to repay will be limited.

Other than that, I'm sure it is a learning experience to measure twice and cut once.

BlueHouse

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #3 on: December 13, 2024, 02:38:57 PM »
Quote
I don't think I own anything in any account that is worth less than what I paid for it because I've been buying and holding and stocks are up. 

You don't have to guess; go to your broker's website, and find either unrealized gains/losses or lot details.  You may have specific lots that do have losses, if you were buying regularly.  However, if you were selling funds and using the average cost method, you might not be able to select them on that specific fund.

If you have a lot of lots, or lots with widely differing cost bases, always select lots to sell, and sell the highest cost first.  That delays your capital gains.

I look like a genius when I look at individual lots, because there are only 3 lots that show unrealized losses, and the total is $160.  Not gonna help.  :(

Selling highest first --- very helpful info.  I didn't know it was that easy.  Thanks!

BlueHouse

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #4 on: December 13, 2024, 02:42:25 PM »
Aside from recognizing capital losses, several common ways to lower AGI are to make deductible traditional IRA contributions, contribute more to work retirement accounts like a 401(k), or contribute to an HSA.  Of course, you have to meet the eligibility requirements for these options.

If none of those work, you should pay attention to the bottom of Form 8962 around Line 28 or so to see if you benefit from the repayment limitations associated with having an actual income higher than your ACA estimated income.  If your AGI is below certain breakpoints, then the amount of ACA subsidy you have to repay will be limited.

Other than that, I'm sure it is a learning experience to measure twice and cut once.

I don't qualify for contributing more because I have no earned income.   (FIREd a few years ago)

Form 8962: this sounds like it's my only hope.  THANK YOU  so much for pointing this out.  Making a sticky out of this right now!

iluvzbeach

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #5 on: December 13, 2024, 03:44:17 PM »
BlueHouse, I'm sure it's all covered in the form that secondcor521 pointed you to but here's a link to the KFF site that also has information:

https://www.kff.org/faqs/faqs-health-insurance-marketplace-and-the-aca/whats-the-most-i-would-have-to-repay-the-irs/

secondcor521

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #6 on: December 13, 2024, 06:12:18 PM »
Aside from recognizing capital losses, several common ways to lower AGI are to make deductible traditional IRA contributions, contribute more to work retirement accounts like a 401(k), or contribute to an HSA.  Of course, you have to meet the eligibility requirements for these options.

If none of those work, you should pay attention to the bottom of Form 8962 around Line 28 or so to see if you benefit from the repayment limitations associated with having an actual income higher than your ACA estimated income.  If your AGI is below certain breakpoints, then the amount of ACA subsidy you have to repay will be limited.

Other than that, I'm sure it is a learning experience to measure twice and cut once.

I don't qualify for contributing more because I have no earned income.   (FIREd a few years ago)

Form 8962: this sounds like it's my only hope.  THANK YOU  so much for pointing this out.  Making a sticky out of this right now!

Sure.

Just a comment - you don't need to have earned income to contribute to an HSA.  You do need to have (only) an HSA-qualified health plan (which exist on the ACA marketplace if that's where you get your health insurance).  May not help this year but may be useful in future years.

seattlecyclone

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #7 on: December 14, 2024, 12:43:24 AM »
If you have some cash you could buy a bunch of penny stocks, sell the losers this month and wait until next month to sell the winners. You probably won't end up richer overall doing this though.

Omy

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #8 on: December 14, 2024, 05:15:10 AM »
If you have a rental unit, you could make some repairs by the end of the year.

BlueHouse

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #9 on: December 14, 2024, 06:12:14 AM »
If you have some cash you could buy a bunch of penny stocks, sell the losers this month and wait until next month to sell the winners. You probably won't end up richer overall doing this though.

LOL.  I lack the knowledge and the guts to do anything so crazy.     


Paul der Krake

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #10 on: December 14, 2024, 06:53:17 AM »
Donor-advised fund if you were planning on giving away money anyway.

MDM

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #11 on: December 14, 2024, 02:12:05 PM »
Donor-advised fund if you were planning on giving away money anyway.
Laudable idea, but it won't affect (M)AGI.

Paul der Krake

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #12 on: December 14, 2024, 06:21:18 PM »
Donor-advised fund if you were planning on giving away money anyway.
Laudable idea, but it won't affect (M)AGI.
Ah yes, forgot about the disallowed deductions.

secondcor521

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #13 on: December 14, 2024, 06:57:10 PM »
Donor-advised fund if you were planning on giving away money anyway.
Laudable idea, but it won't affect (M)AGI.
Ah yes, forgot about the disallowed deductions.

They're not disallowed, they just fall after (M)AGI on the tax return and therefore don't help address OP's situation.

Gone Fishing

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #14 on: December 15, 2024, 12:39:39 PM »
@seattlecyclone

If you have already blown your ACA credit, would it be advantageous to go ahead and harvest long term capital gains up to the top of the 0% bracket to raise the basis?  Might open up some future loss opportunities for us long time retired folks.  That is, unless you live in a non-medicaid expanded state and might need the future gains (or IRA conversions) to avoid falling into the medicaid/ACA gap.

seattlecyclone

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #15 on: December 16, 2024, 12:27:49 AM »
Maybe! It's common for folks' tax rates to go down past the end of the ACA credits, so you might want to lock in that lower rate if it applies to you, in order to avoid paying higher rates later. This is a very individualized thing though. No one-size-fits-all answer.

mistymoney

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #16 on: December 17, 2024, 09:57:30 AM »
Aside from recognizing capital losses, several common ways to lower AGI are to make deductible traditional IRA contributions, contribute more to work retirement accounts like a 401(k), or contribute to an HSA.

to late into the year for that I think.

would charity deduction help?

secondcor521

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #17 on: December 17, 2024, 02:59:21 PM »
Aside from recognizing capital losses, several common ways to lower AGI are to make deductible traditional IRA contributions, contribute more to work retirement accounts like a 401(k), or contribute to an HSA.

to late into the year for that I think.

would charity deduction help?

Not for AGI related things.  Charitable deductions are part of itemized deductions, which come after the AGI calculation on the tax forms and therefore don't affect AGI.

Must_ache

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #18 on: December 25, 2024, 10:42:21 AM »
For years I made decent money but stashed it away and stayed just inside the 15% federal tax bracket. 
But now that I'm retired some of my income will get taxed a bit higher due to ACA subsidies. 
I figure that's OK though, that's the cost of having still relatively inexpensive health insurance and making some $ on the side as well.

BlueHouse

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #19 on: January 13, 2025, 01:31:55 PM »
Thanks everyone.  I'll let you all know how it settles after I do my taxes.  I still have one expense that MAY affect it -- starting up a new business and I have one expense that falls right on the border between 2024 and 2025.  I'm just not sure if I can really claim that as a business expense or if its just a hobby.  I think I'll know the answer to that in about 6 months if I start making any money. 

mistymoney

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #20 on: January 17, 2025, 12:24:34 PM »
Thanks everyone.  I'll let you all know how it settles after I do my taxes.  I still have one expense that MAY affect it -- starting up a new business and I have one expense that falls right on the border between 2024 and 2025.  I'm just not sure if I can really claim that as a business expense or if its just a hobby.  I think I'll know the answer to that in about 6 months if I start making any money.

I think you can take a loss for a few years (3) from an attempted business start up before the IRS wants to label it a hobby.

seattlecyclone

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Re: I messed up balancing my AGI against cap gains tax and ACA subsidy
« Reply #21 on: January 17, 2025, 12:48:00 PM »
Thanks everyone.  I'll let you all know how it settles after I do my taxes.  I still have one expense that MAY affect it -- starting up a new business and I have one expense that falls right on the border between 2024 and 2025.  I'm just not sure if I can really claim that as a business expense or if its just a hobby.  I think I'll know the answer to that in about 6 months if I start making any money.

I think you can take a loss for a few years (3) from an attempted business start up before the IRS wants to label it a hobby.

Sort of. If you show a profit in three out of five years you're definitely in the clear to label it as a business even if you lose money in the other two years, but before you've established that history it comes down to the overall facts and circumstances surrounding that activity. Those factors mostly come down to how well you can show intent, ability, and effort to be profitable.

 

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