Author Topic: Sell loser stock?  (Read 2997 times)

hownowbrowncow

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Sell loser stock?
« on: October 17, 2013, 12:43:35 AM »
Hello all, Iím early 30s and graduated from a full-time masterís program in spring 2012. Iím currently holding ~$27k of student debt (down from $68k in March).  I made myself a fun amortization table and with my income and expenses should have it paid off by late Feb 2014.  I would love to have it paid off sooner if possible though. These are fed loans and the interest is at 6.55% (ouch!) but since it looks like I have only about 4.5 months left not sure itís worth it to try to refinance.  I have no other debt.

I made the move to have the minimal amount of fed withholding on paycheck (WA does not have a state income tax) so I could have more take home pay as in more money to throw at the loan now not later.  Of course this means I will have a pretty big bill from Uncle Sam in April.  Thatís fine Iíd rather get an interest free loan then give one. 

Using the withholding calculator on the IRS site, it calculated $6900 in taxes owed.  Not a problem I have that much on hand but hereís the main question-

I have some stock that I purchased a couple years ago at about $2100 and now itís worth about $600.  The stock plummeted in the fiscal crisis and has never recovered.  Itís not doing me any good sitting there and I feel selling it now and putting $600 toward my loan and having $1500 capital loss when I file my taxes is better than waiting for it to maybe be worth $700 in a year.  Iím embarrassed Iíve been sitting on it so long but better late than never, right?

Oh for context this is NOT retirement money.  Thatís an entirely separate account. Only $40k today Ė hey late bloomer Ė but Iím now maxing it out and taking full advantage of employer matching.  In my pre grad school days I had some money to play with (and neglected retiremen - face punch!) so I opened an etrade account.  I didnít use the money for grad school because it was seriously bottomed out when I was in school.  Most of the portfolio has now recovered except for this guy. 

To head off questions here is some budget info.  Donít feel like outlining every detail but broad strokes:

INCOME
Take home pay: $5600-$6100/month (my role qualifies for overtime and typical work week at my job is 45 hours.  $5600 is if I worked 40 hours a week all month).  I have a bonus of a couple thousand in Jan that will all go to the loan.

EXPENSES
Rent: $1095 includes parking and W/S/G
Utilities - electricity, heat and internet: average $80/month and paid by cc (see below).
Phone: $0 (work pays cell, no landline)
Insurance: $0 (work pays premiums)  I have $150 in a flexible spending account (pretax payroll deductions) and out of pocket medical expenses (co-pays, some prescriptions, contact solution) in 2013 are currently at $48.   
Car: Compact car (year 2000).  Paid cash for it.  127k miles and in good shape.  Drive maybe once a week.  I walk to work and live in a very walkable/transit friendly neighborhood.  I could get rid of it but not ready to take the leap yet.  All expenses - gas/registration/insurance/oil changes - paid by cc.
ATM withdrawals: average $100 month
Credit card payment: $60/month.  I recently started using a 0% APR card.  Since my first cc, Iíve been the type to use plastic anywhere and everywhere and until this past August, I have never not paid a credit card bill in full.  Then I got an offer for 0% APR for 21 months and it seemed like a good way to accelerate paying off my loan.

Thatís basically it for expenses like I said everything but rent, student loan, and the occasional cash purchase gets paid by card.  I know thereís fat to be trimmed from all that but for now I just want to get feedback if my sell stock for loan idea is a good move.  Thanks for reading!

Ottawa

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Re: Sell loser stock?
« Reply #1 on: October 17, 2013, 05:30:36 AM »

seattlecyclone

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Re: Sell loser stock?
« Reply #2 on: October 17, 2013, 08:28:44 AM »
I made the move to have the minimal amount of fed withholding on paycheck (WA does not have a state income tax) so I could have more take home pay as in more money to throw at the loan now not later.  Of course this means I will have a pretty big bill from Uncle Sam in April.  Thatís fine Iíd rather get an interest free loan then give one.

Be very careful with this strategy. There's an "estimated tax" that you're supposed to pay on a quarterly basis throughout the year if you don't have enough money withheld from your paychecks during the year, and they charge a penalty in April if you didn't pay it on time.

From the instructions from Line 77 of the instructions for form 1040:
Quote
Estimated Tax Penalty
You may owe this penalty if:
* Line 76 is at least $1,000 and it is more than 10% of the tax shown on your return, or
* You did not pay enough estimated tax by any of the due dates. This is true even if you are due a refund.

If your withholding throughout the year is at least $1,000 less than you owe, and less than the amount of tax you owed last year, it's likely that you will have to pay a penalty in April.

hownowbrowncow

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Re: Sell loser stock?
« Reply #3 on: October 17, 2013, 09:04:48 PM »
Hmm  my withholding paid to date in 2013 is more than my taxes owed in 2012 since I worked half the year/full time student half the year.  So am I ok?  Or since my difference would be greater than $1,000 should I adjust my withholding for my remaining 2013 paychecks?

seattlecyclone

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Re: Sell loser stock?
« Reply #4 on: October 17, 2013, 09:28:26 PM »
There's an exception in the estimated tax penalty for people who paid more (in estimated taxes and/or withholding) than their total tax bill the previous year, so you would probably be okay this year. Going forward, assuming your income doesn't change a whole lot from year to year, you'll need to make sure to have at least the amount you owed the previous year withheld in the current year.

hownowbrowncow

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Re: Sell loser stock?
« Reply #5 on: October 17, 2013, 10:52:41 PM »
Alright great.  Once my loan is paid off in Feb '14, I will hike my withholding back up to a point where the difference at tax time will be minimal. 

So sell the stock?  It's not enough to really move the needle on my AGI or anything but putting towards the loan is at least putting it to work a little. Right?