Capital Gain timing

[MountainBeard]

Like many others here I’m looking to move to a lazier, index based portfolio and that means selling off some individual stocks.  First on my list is one that makes up 60% of the total value of my taxable accounts and the (long term) profit on it is ~86k for a tax burden of ~13k.

I know I’m over allocated in this company, I’m also not excited about the big tax bill – what would you all do: rip the Band-Aid off and sell it now in 2014, wait and sell it in 2015 delaying the tax burden a year, or any other clever ideas (I’m aware that appreciated assets can be donated)?

(Since I'd probably ask if someone gave my this scenario:  I'm in the 28% marginal bracket and will be for some time still - so waiting until I'm in a lower bracket to collect these as tax free gains is not an option.)

[matchewed]

Okay so you can pay the tax now and get into your desired AA or pay the tax later and still get into your AA...

Why are you even considering the delaying action? What benefit do you think it will have?

[MountainBeard]

Selling now vs in two weeks shifts the tax burden by a year - that's essentially an interest free loan (albeit with a looming tax bill).  Mainly I was wondering if anyone else has any creative ideas that I might not have thought of for appreciated assets.

This has actually been on my to do list for 9 years, and while the returns have been good (well in excess of SWTSX) I recognize the added risk.

[matchewed]

Selling now vs in two weeks shifts the tax burden by a year - that's essentially an interest free loan (albeit with a looming tax bill).  Mainly I was wondering if anyone else has any creative ideas that I might not have thought of for appreciated assets.

This has actually been on my to do list for 9 years, and while the returns have been good (well in excess of SWTSX) I recognize the added risk.

So you're letting your gut make your decision... generally a bad idea.

Regardless of past performance you still have that risk. Is that "interest free loan" worth whatever added risk? You've been answering yes for nine years. Why is this risk no longer palatable to you?

[RapmasterD]

Sell the thing.

Pay your taxes.

Move on.

Boom.

[DrF]

This may be a stupid question... would the gain of 86k make one's regular income be taxed at a higher level/bracket?

Scenario:

Single, earning $130,000 per year = 28% bracket.

Sell stock for 86k profit = annual income of $216,000 = 33% bracket on all earning above $183,250.

Pay only ~13k (15%) for long term capital gains on the stock sale.

Is this scenario correct?

If so, then maybe sell half now, half next year.

[Cheddar Stacker]

Half in 2014, half in 2015.

28% bracket is too close to the additional medicare tax threshold. Splitting it should avoid that additional tax.

[SpreadsheetMonkey]

I was about to start a new thread on a similar situation so I will share my plan and ask anybody to step in and correct me if I am wrong.

I plan on selling the few individual stocks and sector specific etfs we own. All have increased in value since purchase (yay!) so I have no offsetting capital losses this year (yay! Boooo!). By waiting until January to sell, then immediately purchasing an etf, I have the potential to create an offset if the market goes down in 2015. This could play out in one of two ways:

1) if my new investment only goes up, I end up paying taxes on the full capital gain from the January sale.
2) if the new investment goes down at some point, I can sell and the new investment and use it to offset the gain. Even if I own it for less than a year, I think capital losses on long and short term assets are both deductible.

So...any reason NOT to wait until 2015 if I have no capital losses in 2014?

[FarmerPete]

Like many others here I’m looking to move to a lazier, index based portfolio and that means selling off some individual stocks.  First on my list is one that makes up 60% of the total value of my taxable accounts and the (long term) profit on it is ~86k for a tax burden of ~13k.

I know I’m over allocated in this company, I’m also not excited about the big tax bill – what would you all do: rip the Band-Aid off and sell it now in 2014, wait and sell it in 2015 delaying the tax burden a year, or any other clever ideas (I’m aware that appreciated assets can be donated)?

(Since I'd probably ask if someone gave my this scenario:  I'm in the 28% marginal bracket and will be for some time still - so waiting until I'm in a lower bracket to collect these as tax free gains is not an option.)

Do you have any tax advantaged investment headroom left?  For example, if you aren't maxing out your 401k/IRA you could offset your gains by upping your contributions.  Probably too late for 401k in 2014, but still some time for IRA if you haven't maxed it out.

Personally, I mix up paying gains and transferring the assets to my charitable account.  I like taking a tax writeoff on the entire appreciated value without paying taxes on the gains.  Since I would make the donations with cash otherwise, this works out rather well.  Obviously, this is not a good option if you aren't giving cash to charity currently.

[LordSquidworth]

This may be a stupid question... would the gain of 86k make one's regular income be taxed at a higher level/bracket?

Scenario:

Single, earning $130,000 per year = 28% bracket.

Sell stock for 86k profit = annual income of $216,000 = 33% bracket on all earning above $183,250.

Pay only ~13k (15%) for long term capital gains on the stock sale.

Is this scenario correct?

If so, then maybe sell half now, half next year.

Only if its short term gains. Those are taxed as income. Long capital gains aren't.

Like many others here I’m looking to move to a lazier, index based portfolio and that means selling off some individual stocks.  First on my list is one that makes up 60% of the total value of my taxable accounts and the (long term) profit on it is ~86k for a tax burden of ~13k.

I know I’m over allocated in this company, I’m also not excited about the big tax bill – what would you all do: rip the Band-Aid off and sell it now in 2014, wait and sell it in 2015 delaying the tax burden a year, or any other clever ideas (I’m aware that appreciated assets can be donated)?

(Since I'd probably ask if someone gave my this scenario:  I'm in the 28% marginal bracket and will be for some time still - so waiting until I'm in a lower bracket to collect these as tax free gains is not an option.)

You have to figure out the opportunity cost of paying that $13,000 in taxes. The stock might be one of the 100 year old companies that aren't going anywhere, in which case you'd be losing that $13,000 for further compounding.

ETFs and Index's are largely for risk tolerance. If it's a company like Exxon Mobil at a fair price, you might be better off staying the course. That $13,000 in taxes is worth $131,000 in 30 years at a conservative 8%. $1,316,000 in 60 years.

It's whatever lets you sleep better at night.