Author Topic: Should DW sell her mutual fund before 2017?  (Read 3110 times)

lampstache

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Should DW sell her mutual fund before 2017?
« on: November 07, 2016, 09:28:03 PM »
DW and I got married this year (woohoo) and collectively will make about 108-110k this year. She graduates from nursing school in December and will be getting a full time nursing position soon thereafter. We estimate our combined income in 2017 will be approximately 145-155k.

With our tax burden going up next year based on our higher combined income, would she be wise to sell her mutual fund this year while our incomes are lower to pay less taxes on the gains? Mutual Fund (VDIGX) is worth $4650 today and she originally invested $3000 about 4 years ago. If she did sell it, we would either add it to our emergency fund or put it into a roth ira for her.

Thanks for you advice!

terran

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Re: Should DW sell her mutual fund before 2017?
« Reply #1 on: November 07, 2016, 09:36:49 PM »
Are those incomes gross or is that your AGI? The long term capital gains tax rate is the same 15% for AGI's between $75,300 and $466,950, so unless you are/expect to be outside that range it doesn't much matter. See http://www.schwab.com/public/schwab/nn/articles/Taxes-Whats-New

secondcor521

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Re: Should DW sell her mutual fund before 2017?
« Reply #2 on: November 07, 2016, 09:37:15 PM »
Unless you have an unusual tax situation, it probably won't matter.

The 25% federal tax bracket goes from $75,300 to $151,900 of taxable income (which is your gross income minus adjustments, deductions, and exemptions).  You'll probably be in this bracket this year and next year.  In this bracket you'll pay 15% of the gain.

If you live in MN, they have a 7.05% rate from $36,650 to $145,620 of taxable income.  Above that upper number, it goes up a little bit to 7.85%.

Instead of selling it this year or next year, you could just hang on to it and not pay capital gains taxes at all (at least until you sell it later).

JJ-

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Re: Should DW sell her mutual fund before 2017?
« Reply #3 on: November 07, 2016, 09:54:47 PM »
Unless you want to swap for a different fund (and you can fund IrA's no problem) there's probably no need to sell. Your tax situation could change in 5 years for various reasons(kids, job loss, etc) and you could end up paying no capital gains then.

lampstache

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Re: Should DW sell her mutual fund before 2017?
« Reply #4 on: November 08, 2016, 05:39:57 AM »
Are those incomes gross or is that your AGI? The long term capital gains tax rate is the same 15% for AGI's between $75,300 and $466,950, so unless you are/expect to be outside that range it doesn't much matter. See http://www.schwab.com/public/schwab/nn/articles/Taxes-Whats-New

This is our gross income. Thanks for the info, I appreciate it!

lampstache

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Re: Should DW sell her mutual fund before 2017?
« Reply #5 on: November 08, 2016, 05:56:53 AM »
Unless you have an unusual tax situation, it probably won't matter.

The 25% federal tax bracket goes from $75,300 to $151,900 of taxable income (which is your gross income minus adjustments, deductions, and exemptions).  You'll probably be in this bracket this year and next year.  In this bracket you'll pay 15% of the gain.

If you live in MN, they have a 7.05% rate from $36,650 to $145,620 of taxable income.  Above that upper number, it goes up a little bit to 7.85%.

Instead of selling it this year or next year, you could just hang on to it and not pay capital gains taxes at all (at least until you sell it later).

Thanks secondcor521. This is our gross income and after deductions we'd still be sitting in the 25% tax bracket for federal and 7.05% for state. All the info is very helpful.

If I we were able to get our taxable income down below the $75,300 threshold, would it be worth it then? Not sure if I can hit the number though, it would be a stretch I think.

boarder42

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Re: Should DW sell her mutual fund before 2017?
« Reply #6 on: November 08, 2016, 06:21:42 AM »
if you can get your AGI under the 15% threshold it is 100% worth it its called tax gain harvesting.  Remember those gains count towards your AGI as well though. in the 15% bracket you'd pay no taxes on the 1650 its made.

terran

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Re: Should DW sell her mutual fund before 2017?
« Reply #7 on: November 08, 2016, 06:22:26 AM »
If I we were able to get our taxable income down below the $75,300 threshold, would it be worth it then? Not sure if I can hit the number though, it would be a stretch I think.

It might be, but remember that the capital gain counts as income as well, so you need to get your taxable income including the gain from the sale under $75300.

Whether it's worth it or not probably depends on whether you want to sell anyway (to use the money or invest in something else) or would simply want to reinvest in the same fund at a higher cost basis, and what you expect for the future. If you are happy to stay invested in this fund long term and expect to be in a lower (or no) tax state at some point then it's probably best to keep it. If you aren't happy with this mutual fund long term and/or expect to remain in the same state or one with higher taxes forever then tax gain harvesting in the 0% federal bracket would be a good thing.

Also, remember you'll only pay tax on the gain, not the total amount of the investment, so don't let the tax tail wag the investment dog in the sense that you keep what you consider to be a poor investment just because you don't want to pay some taxes on whatever gain there has been.

secondcor521

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Re: Should DW sell her mutual fund before 2017?
« Reply #8 on: November 08, 2016, 01:47:04 PM »
Unless you have an unusual tax situation, it probably won't matter.

The 25% federal tax bracket goes from $75,300 to $151,900 of taxable income (which is your gross income minus adjustments, deductions, and exemptions).  You'll probably be in this bracket this year and next year.  In this bracket you'll pay 15% of the gain.

If you live in MN, they have a 7.05% rate from $36,650 to $145,620 of taxable income.  Above that upper number, it goes up a little bit to 7.85%.

Instead of selling it this year or next year, you could just hang on to it and not pay capital gains taxes at all (at least until you sell it later).

Thanks secondcor521. This is our gross income and after deductions we'd still be sitting in the 25% tax bracket for federal and 7.05% for state. All the info is very helpful.

If I we were able to get our taxable income down below the $75,300 threshold, would it be worth it then? Not sure if I can hit the number though, it would be a stretch I think.

In my opinion, no, it probably wouldn't.

You're talking about a difference of 15% of $1,650, or about $248.  For a young professional couple, I think you probably have more opportunities to optimize your income or your other spending.

If you're able and willing to optimize *everything* (like I was) and you want to sell it for other reasons, then sure.

If it were me, I'd probably leave it invested where it is, and look elsewhere (rent, auto, student loans, 401k contributions, entertainment are all typical prospects).

boarder42

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Re: Should DW sell her mutual fund before 2017?
« Reply #9 on: November 08, 2016, 01:53:50 PM »
Unless you have an unusual tax situation, it probably won't matter.

The 25% federal tax bracket goes from $75,300 to $151,900 of taxable income (which is your gross income minus adjustments, deductions, and exemptions).  You'll probably be in this bracket this year and next year.  In this bracket you'll pay 15% of the gain.

If you live in MN, they have a 7.05% rate from $36,650 to $145,620 of taxable income.  Above that upper number, it goes up a little bit to 7.85%.

Instead of selling it this year or next year, you could just hang on to it and not pay capital gains taxes at all (at least until you sell it later).

Thanks secondcor521. This is our gross income and after deductions we'd still be sitting in the 25% tax bracket for federal and 7.05% for state. All the info is very helpful.

If I we were able to get our taxable income down below the $75,300 threshold, would it be worth it then? Not sure if I can hit the number though, it would be a stretch I think.

In my opinion, no, it probably wouldn't.

You're talking about a difference of 15% of $1,650, or about $248.  For a young professional couple, I think you probably have more opportunities to optimize your income or your other spending.

If you're able and willing to optimize *everything* (like I was) and you want to sell it for other reasons, then sure.

If it were me, I'd probably leave it invested where it is, and look elsewhere (rent, auto, student loans, 401k contributions, entertainment are all typical prospects).

why not 250 dollars harvested now is better than nothing its pretty simple to sell it and rebuy a similar index

secondcor521

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Re: Should DW sell her mutual fund before 2017?
« Reply #10 on: November 08, 2016, 04:03:54 PM »
Unless you have an unusual tax situation, it probably won't matter.

The 25% federal tax bracket goes from $75,300 to $151,900 of taxable income (which is your gross income minus adjustments, deductions, and exemptions).  You'll probably be in this bracket this year and next year.  In this bracket you'll pay 15% of the gain.

If you live in MN, they have a 7.05% rate from $36,650 to $145,620 of taxable income.  Above that upper number, it goes up a little bit to 7.85%.

Instead of selling it this year or next year, you could just hang on to it and not pay capital gains taxes at all (at least until you sell it later).

Thanks secondcor521. This is our gross income and after deductions we'd still be sitting in the 25% tax bracket for federal and 7.05% for state. All the info is very helpful.

If I we were able to get our taxable income down below the $75,300 threshold, would it be worth it then? Not sure if I can hit the number though, it would be a stretch I think.

In my opinion, no, it probably wouldn't.

You're talking about a difference of 15% of $1,650, or about $248.  For a young professional couple, I think you probably have more opportunities to optimize your income or your other spending.

If you're able and willing to optimize *everything* (like I was) and you want to sell it for other reasons, then sure.

If it were me, I'd probably leave it invested where it is, and look elsewhere (rent, auto, student loans, 401k contributions, entertainment are all typical prospects).

why not 250 dollars harvested now is better than nothing its pretty simple to sell it and rebuy a similar index

Sure, $250 is $250.

It sounded like OP had to jump through some hoops to lower their AGI enough to save the $250.  That will take time and effort on his part.  My point is that time and effort is likely better spent elsewhere, especially since they could save the $250 simply by doing nothing and therefore not realizing the gain and thus not incurring the tax.

boarder42

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Re: Should DW sell her mutual fund before 2017?
« Reply #11 on: November 08, 2016, 05:39:33 PM »
well the way you get there is more saving and that helps all around. 110k -36k is 74k and then you can knock off another 11k ... you do that to save the 250 b/c then you saved more money.