Author Topic: Tax Harvesting - When?  (Read 839 times)

Radioherd88

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Tax Harvesting - When?
« on: February 04, 2019, 03:31:22 PM »
Hi All,

I'm new to the notion of tax gain/loss harvesting and wanted to see if there's a quick calculation/estimation for how to figure out if it's worth doing it each year?

I currently have the majority of my portfolio in tax advantages accounts (401k, 403b, 457b) so there's no opportunity there but my taxable portfolio will start to grow this year. Last year i made a small loss on my 10k Employer Stock Purchase Plan - how do you work out if it's worth harvesting?

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1608
Re: Tax Harvesting - When?
« Reply #1 on: February 05, 2019, 12:40:54 AM »
What is the cost to tax loss harvest for you?  If you're using mutual funds or ETFs that are $0/trade, you don't pay any fees to tax loss harvest.

You should also read about wash sales, which would cancel your attempt at tax loss harvesting.  You can't buy the same investment within 30 days of the same (including reinvested dividends).  If you sell at a loss, but you also bought, the purchase washes out the sale (to the extent it's the same amount).

One approach is to pair up each investment with something similar, but not "substantially identical".  Maybe you sell S&P 500 at a loss and buy a total stock market fund.

Radioherd88

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Tax Harvesting - When?
« Reply #2 on: February 06, 2019, 01:56:19 PM »
What is the cost to tax loss harvest for you?  If you're using mutual funds or ETFs that are $0/trade, you don't pay any fees to tax loss harvest.

You should also read about wash sales, which would cancel your attempt at tax loss harvesting.  You can't buy the same investment within 30 days of the same (including reinvested dividends).  If you sell at a loss, but you also bought, the purchase washes out the sale (to the extent it's the same amount).

One approach is to pair up each investment with something similar, but not "substantially identical".  Maybe you sell S&P 500 at a loss and buy a total stock market fund.

Good questions -

Yes well these funds are in one stock only with etrade so i'm not sure what the cost is to trade - and yes the funds would have to be bought elsewhere to avoid the wash  sale - i'd likely just move them to VTSAX or something anyway

secondcor521

  • Handlebar Stache
  • *****
  • Posts: 1943
  • Age: 49
  • Location: Boise, Idaho
  • Big cattle, no hat.
    • Age of Eon - Overwatch player videos
Re: Tax Harvesting - When?
« Reply #3 on: February 06, 2019, 03:18:24 PM »
It boils down to hassle factor divided by tax savings.

Hassle factor is the time and effort to make the transaction, track wash sale dates, then properly fill out your tax return with the trades.

Tax savings depends a lot on the rest of your return.  Tax harvesting a capital loss could offset a capital gain, which would save you the amount of the loss times your capital gains rate.  Tax harvesting a capital gain could offset ordinary income, which would save you the amount of your loss times your ordinary income tax rates, probably at the federal and state income tax level; it might also increase your ACA APTC.

You can also tax harvest capital gains, which is where you realize gains if you are in the 0% capital gains bracket.  That gain does not get taxed and you can immediately rebuy and reset your basis at the new higher level.  However, even though the gain may be free from federal capital gains taxes, it may decrease your ACA APTC and may increase your state taxes.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1608
Re: Tax Harvesting - When?
« Reply #4 on: February 06, 2019, 08:58:19 PM »
It sounds like you could gain both a tax benefit and diversification benefit by selling this stock.

E-Trade charges $6.95/trade, so that's what you'll pay to sell this stock.
https://us.etrade.com/what-we-offer/pricing-and-rates

I'd withdraw the money and move it to Vanguard.  Vanguard is the only place that will charge no fees to buy VTSAX.  And once you've done that, you'll diversify into thousands of companies.  You can't miss out if you buy it all, right?

Radioherd88

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Tax Harvesting - When?
« Reply #5 on: February 07, 2019, 02:27:07 PM »
It sounds like you could gain both a tax benefit and diversification benefit by selling this stock.

E-Trade charges $6.95/trade, so that's what you'll pay to sell this stock.
https://us.etrade.com/what-we-offer/pricing-and-rates

I'd withdraw the money and move it to Vanguard.  Vanguard is the only place that will charge no fees to buy VTSAX.  And once you've done that, you'll diversify into thousands of companies.  You can't miss out if you buy it all, right?

Yeah, thatís kind of been my thinking - If itís lost money overall, does this negate the difference in long term versus short term capital gains fees?

Radioherd88

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Tax Harvesting - When?
« Reply #6 on: February 11, 2019, 04:36:04 PM »
It sounds like you could gain both a tax benefit and diversification benefit by selling this stock.

E-Trade charges $6.95/trade, so that's what you'll pay to sell this stock.
https://us.etrade.com/what-we-offer/pricing-and-rates

I'd withdraw the money and move it to Vanguard.  Vanguard is the only place that will charge no fees to buy VTSAX.  And once you've done that, you'll diversify into thousands of companies.  You can't miss out if you buy it all, right?

Yeah, thatís kind of been my thinking - If itís lost money overall, does this negate the difference in long term versus short term capital gains fees?

So see attached in E*Trade - overall i have an expected gain right? I can't seem to find where in Etrade i can see how much i've contributed versus how much i've gained..... And also how do you seperate whats short term and long term to know which ones to sell?

MDM

  • Walrus Stache
  • *******
  • Posts: 9092
Re: Tax Harvesting - When?
« Reply #7 on: February 12, 2019, 05:06:47 PM »
how do you seperate whats short term and long term to know which ones to sell?
See Topic No. 409 Capital Gains and Losses | Internal Revenue Service.

Radioherd88

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Tax Harvesting - When?
« Reply #8 on: February 14, 2019, 04:08:53 PM »
how do you seperate whats short term and long term to know which ones to sell?
See Topic No. 409 Capital Gains and Losses | Internal Revenue Service.

I read somewhere there's an easy way to characterize your stocks a certain way to know when they were bought and thus when they are long term - do you know what that term is called?

MDM

  • Walrus Stache
  • *******
  • Posts: 9092
Re: Tax Harvesting - When?
« Reply #9 on: February 14, 2019, 04:21:18 PM »
how do you seperate whats short term and long term to know which ones to sell?
See Topic No. 409 Capital Gains and Losses | Internal Revenue Service.

I read somewhere there's an easy way to characterize your stocks a certain way to know when they were bought and thus when they are long term - do you know what that term is called?
Nope.  What is an easier way to know when they were bought than to know when they were bought?

Radioherd88

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Tax Harvesting - When?
« Reply #10 on: February 15, 2019, 03:21:02 PM »
how do you seperate whats short term and long term to know which ones to sell?
See Topic No. 409 Capital Gains and Losses | Internal Revenue Service.

I read somewhere there's an easy way to characterize your stocks a certain way to know when they were bought and thus when they are long term - do you know what that term is called?
Nope.  What is an easier way to know when they were bought than to know when they were bought?

Lol , yeah - there were a choice of options for the way your shares were reported by default and one of them made it really easy - but i'm not sure where i saw it - in JL Collins Simple Path to Wealth or in a blog somewhere!

MDM

  • Walrus Stache
  • *******
  • Posts: 9092
Re: Tax Harvesting - When?
« Reply #11 on: February 15, 2019, 03:42:17 PM »
Lol , yeah - there were a choice of options for the way your shares were reported by default and one of them made it really easy - but i'm not sure where i saw it - in JL Collins Simple Path to Wealth or in a blog somewhere!
Ah, perhaps you are talking about cost basis methods?

The "best" (as in the one that gives you the most flexibility) is "specific share identification".

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1608
Re: Tax Harvesting - When?
« Reply #12 on: February 17, 2019, 08:14:19 PM »
I prefer "specific lot identification".  When an ETF goes up in price, then falls back down, you have an isolated "lot" (purchase) that is higher than earlier or later purchases.  That's also the lowest cost one to sell (assuming it's long-term).

Some companies might offer "first in, first out" (FIFO), where you always sell the oldest stock.  But if you instead do specific lot identification, you should be presented with a list.  The place where you invest should do all the tracking for you, so it's not much extra effort.

Radioherd88

  • 5 O'Clock Shadow
  • *
  • Posts: 52
Re: Tax Harvesting - When?
« Reply #13 on: February 18, 2019, 11:51:26 AM »
Lol , yeah - there were a choice of options for the way your shares were reported by default and one of them made it really easy - but i'm not sure where i saw it - in JL Collins Simple Path to Wealth or in a blog somewhere!
Ah, perhaps you are talking about cost basis methods?

The "best" (as in the one that gives you the most flexibility) is "specific share identification".

Yep that's the one! Ok thanks, now to find how i see where that option is in my Vanguard account!