Author Topic: After tax account, what returns do you need to cover tax losses?  (Read 1642 times)

ice_beard

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After tax account, what returns do you need to cover tax losses?
« on: November 28, 2017, 10:50:16 AM »
I'm looking to put some funds into a taxable Vanguard regular brokerage account.  My hope is to do at least a little better than an online savings account (~1.15%) which I have my "emergency" funds in.
I want to be somewhat conservative with this investment as this $$ is for short to medium term usage for down payment on a house. 

My big question is...  How much return do you need to cover your tax loses?  I live in California, if that matters.  And I know taxes are currently being debated in Washington.  My hope was something like VBTLX would earn me a bit more without a ton of risk, but then I look at the 1 year returns after taxes and it's negative.  Any thoughts or suggestions are appreciated. 

ixtap

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Re: After tax account, what returns do you need to cover tax losses?
« Reply #1 on: November 28, 2017, 11:00:33 AM »
Are you saying that you are putting the money in taxable instead of tax sheltered?

Or are asking how much to make to pay off the taxes on the gains?

That is, what "tax losses" are you referring to?

ice_beard

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Re: After tax account, what returns do you need to cover tax losses?
« Reply #2 on: November 28, 2017, 11:11:29 AM »
This is an after tax brokerage account.  This is money being invested after all retirement accounts have been maxed and I am looking for something a little bit better than online savings. 

I am wanting to know what kinds of returns would be needed to cover the taxes.  Apologies if my vernacular isn't quite right.  By "tax losses, I mean taxes on gains. 

This questions stems from looking at the Price and Performance tab for specific funds, the section labeled "After tax returns" and the 1 year percentages are negative. 
« Last Edit: November 28, 2017, 11:19:02 AM by ice_beard »

ixtap

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Re: After tax account, what returns do you need to cover tax losses?
« Reply #3 on: November 28, 2017, 11:14:34 AM »
This is an after tax brokerage account.  This is money being invested after all retirement accounts have been maxed and I am looking for something a little bit better than online savings. 

I am wanting to know what kinds of returns would be needed to cover the taxes.  Apologies if my vernacular isn't quite right.  By "tax losses, I mean taxes on gains.

The taxes are based on the gains, so your question is a bit circular. You will never be taxed more than the gains. If you have a 1% savings account, you will pay your marginal tax rate on that 1% gain. If the stock market goes like gang busters and clears 20%, you will pay your marginal tax rate on that 20% gain. Even if the gains push you up a bracket, would you forego the extra so that you don't have to pay tax on it?

ice_beard

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Re: After tax account, what returns do you need to cover tax losses?
« Reply #4 on: November 28, 2017, 11:28:53 AM »
This is an after tax brokerage account.  This is money being invested after all retirement accounts have been maxed and I am looking for something a little bit better than online savings. 

I am wanting to know what kinds of returns would be needed to cover the taxes.  Apologies if my vernacular isn't quite right.  By "tax losses, I mean taxes on gains.

The taxes are based on the gains, so your question is a bit circular. You will never be taxed more than the gains. If you have a 1% savings account, you will pay your marginal tax rate on that 1% gain. If the stock market goes like gang busters and clears 20%, you will pay your marginal tax rate on that 20% gain. Even if the gains push you up a bracket, would you forego the extra so that you don't have to pay tax on it?

No, of course not. 
I think I'm being tripped up when I look at the "Price and Performance" tab for specific funds, the section labeled "After tax returns" and the 1 year percentages are negative.   I'm reading this as, based upon current returns, I need to hold these funds over a year, otherwise I might lose money, correct?
 

Proud Foot

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Re: After tax account, what returns do you need to cover tax losses?
« Reply #5 on: November 28, 2017, 12:44:43 PM »
With VBTLX I believe the dividends are ordinary dividends which means they are taxed as ordinary income. Year to Date the NAV of VBTLX has only increased by $0.14 (10.63 @ 1/3/17 to 10.77 @ 11/27/17). But they have paid out $0.20305/share in dividends.  The after-tax returns reported by Vanguard also are calculated using the highest individual federal income tax rate.

Here is how Vanguard calculates the returns and after-tax returns