Author Topic: short term pain for long term gain (capital gains tax, investment structures)  (Read 2431 times)


  • Handlebar Stache
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I've got some legacy issues from my early investing days - a quantity of stocks (~$800k) in my own name, that generate taxable income for me (a good problem to have).  However, they are taxed at my marginal rate (39%), where as the investments I have in my family trust, investment company and self managed super are taxed between 15 and 30%.  Obviously, I'd prefer to have these investments held in these entities in the long term.

However, moving them across is a capital gains tax event, and there is about $200k of unrealized gains in this portfolio.  i.e. if I were to move it all across, I'd be up for a major capital gain tax bills.

I've sliced and diced the higher yielding / lower capital gains stocks together, which would move about $20k/year of dividends into the other accounts, for a cost of about $12,000 in capital gains tax and brokerage.  That would save me about $1800/year in tax, or a ~15% annual return.  Sadly, I'm taxed either way - either a lump sum right now, or a stream of taxes in future.

I see my three options being:
- Leave it as it.  Just wear the $1800/year in extra tax that I'm paying, but save the $12k
- Transfer it and pay the CGT.  This would seem to be getting an ongoing 15% return on my $12k (a pretty good ROI), with low risk (regulatory risk that the company/super/trust tax rules change).
- Wait it out and hope for a market crash, so I can transfer my stocks at a lower price (realize less capital gains).

While it is probably trying to time the market, I'm tempted to go with option 3, transferring any individual stocks that have a negative or neutral capital gain as the opportunity arises? 

What would you do?


  • Walrus Stache
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It's a problem I thoroughly wish I had. :(

I suspect that 20% of your stocks account for 80% of the gains, so if you transfer the losers over, you're setting yourself up for higher taxes...  But that's just a hypothesis I would test.


  • Handlebar Stache
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This won't solve 800K worth of "problem", however, for whatever charitable donations you make each year do it with appreciated stock instead of cash.  No capital gains to pay and you get the full tax deduction.  Fidelity has a Charitable Gift Fund to facilitate this and I assume Vanguard and others have something similar.

Identify the stocks/mutual funds with the highest gain, donate them to the Charitable Gift Fund, and then "suggest" donations to any 401(c)(3) charity.  Then repeat year after year.   


  • Handlebar Stache
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Thanks for the 401c3 suggestions, but I should have mentioned that I'm in Australia, so US tax laws aren't particularly applicable.  I'll look into options like this in Aus


  • Magnum Stache
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Waiting until they are at or close to purchase price seems the smartest, if you can wait!