Hi guys, I am getting ready to sell some shares of a stock. From what I understand, I can specify shares, right? It used to be sold by the first-in-first-out rule, but I think now I can specify which shares. I have 4 different dates I have bought this stock, each date is over 2 years ago. We are both retirees, so trying to avoid capital gains, etc on our taxes. I am trying to understand what I think I have read, is that there is a certain threshold on Long-term capital gains where there is no tax? I believe that in 2023, that, for joint filers, the amount was $89,250. This is what I have questions about. So, the $89,250 would be our total taxable income threshold? So, our gains would be included in that amount? Let’s just say we made $50,000 in 2023 (social security if that matters), (filing jointly) and the stock sale had long term capital gains of $39,250. Then we would pay NO tax on those gains because the combination of our income and the capital gains was under the $89,250 threshold? This is very important that I understand this, as our stock portfolio will BE our income in the years to come, and I need to understand the stock sales and how to sell them. Thank you for all your knowledge and advice. I appreciate it.
For individual stocks, you’ve always been able to specify which shares to sell, but you have to follow your broker’s instructions on how to identify which shares are being sold, and the identification has to be done before the shares are sold. If you don’t identify which shares, they will be sold on a FIFO basis.
Long term capital gains have tax brackets of 0%, 15% and 20% Short term capital gains are taxed at ordinary income rates.
Kind of. The 0% capital gains bracket for MFJ in 2023 does go up to $89,250 in taxable income. So you need to take your standard deduction of $27,700 (plus an additional $1,500 for each of you over 65) into account. Additionally, only a maximum of 85% of your SS will be taxable.
IIRC, both of you are over 65, so your standard deduction for 2023 would be $30,700 (the $27,700, plus $1500 each for being over 65). 85% of $50,000 in SS results in $42,500 in taxable SS income. With the capital gains tax bracket going up to $89,250, and no income other than the SS, that means that you could realize up to $46,750 in taxable capital gains without having to pay any taxes on your capital gains. (You would still be responsible for taxes on the SS income.)
Also, please keep in mind that it’s only the gains that are taxed. So if you have a cost basis of, say, $30,000 on the stock that you are selling, a $46,750 gain would mean that you would have sold the stock for $76,750 and not had to pay any taxes for selling the stock.
One other caveat - the example above is only for Federal taxes. State taxes would also need to be taken into account, and how capital gains are taxed can vary widely from state to state.
@aj485 - I’m not the original poster, but I monitor and read this board religiously because YOU provide such incredibly valid, accurate and thoughtful responses to tax issues - as well as other tidbits of great information!!!
I would only add one small point that I believe the original poster understands, but think should be made explicit. If only for those reading the thread who are less experienced.
All those considerations about taxes and lots, short term and long term capital gains, do not apply to activity within an IRA or ROTH. Whatever is withdrawn from a traditional IRA is taxed as regular income, and nothing withdrawn from a ROTH is taxed at all.
Okay, as long as we’re adding small points - nothing withdrawn from a ROTH is taxed at all as long as the distribution is a qualified distribution.
The Roth account owner needs to have had a Roth account open and funded for at least 5 years, plus be 59 1/2 (or meet another exception) to take qualified distributions. If the distribution is not qualified, then withdrawals are subject to both taxes and penalties, depending on the circumstances.
With my TDA account, the original default setting was FIFO. However, in the My Profile settings, you can change the default to one of five options. I use the Tax efficient loss harvester option as my default. This assigns the sold shares according to a set of basic rules to minimize taxes. However, there are times when my overall tax situation will make me select a different set of shares than those assigned by the basic rules.
In this case, I can go to the Cost Basis page to assign specific lots for the trade after the shares are sold. This can be done from the day following execution up to the time the trade settles (by 11:59 pm ET on the settlement date).
Thank you so much for your help. The advice you all give is just invaluable to me. Our taxes have gotten pretty simple since retiring and I am starting now, to try to understand some areas for next year’s taxes. We used to own a decent sized company, and have had a CPA for years who did the taxes. Well, since retiring a few years ago, the CPA still does the taxes, and while he is charging us less, I honestly believe $700 is way too much for our simple taxes. I have decided I am a smart person and can do our own taxes. So, I will prepare our 2023 taxes… dumping the CPA. This topic of selling shares was my biggest thing to learn, so I started with it. The info you guys have given is pretty straight forward, and since I am not selling lots and lots of shares, I think I understand it pretty well. I am so thankful for your help and expertise. Thank you.
If you want to be a bit paranoid, do it both ways the first year. Have the CPA do their usual, and do it yourself with the help of software. Then compare the results. If they match your confidence will get a boost. If they don’t, a comparison might be a learning experience. Of course $700 is nothing to sneeze at, and I would not be surprised if that price goes up.
I have a vague memory that one year long ago we might have had our taxes done, but I know there are an awful lot of TurboTax cases lying around here. I think I do a good job (thanks to TurboTax), but can not guarantee it. The IRS has been satisfied in any case.
Thanks. Very good advice. Since I do not want to pay another $700. I am going to do our 2022 taxes “blind”, (which have already been filed) using the same info I sent to the CPA, and see if I get the same result (and same forms) as the CPA did for our 2022 taxes. I am sure you will see me posting more questions here, as I go through that process… wish me luck! And thanks again for all your help.
I’m confused. Was the CPA also telling you which shares to sell? If that’s the case, then he was providing more service than just preparing the taxes - he was also providing advice on how to realize income, at a minimum. Charging $700 a year might be a reasonable price for all of the services that he’s providing, in addition to preparing taxes. You need to understand and be able to perform all of those other services he’s providing, in addition to being able to prepare the taxes, before you drop the CPA.
If he wasn’t providing advice on which shares to sell, then I would suggest that you should understand that yourself, no matter which of you is preparing the taxes. That’s because you would both get the same 1099, which have the same impact on your taxes, no matter which of you is using the 1099 to prepare the taxes.
I will also point out that if the CPA is just preparing your taxes, and you want someone to prepare your taxes for free, you could look for a TaxAide site Free Tax Preparation from AARP Foundation Tax-Aide near your home, without having to learn how to do the taxes yourself to drop the CPA.
No. Unfortunately the $700 was for just filing our taxes this year – no financial advice. If we asked a question, he would charge extra for some small advice to answer our questions. I was OK with his rates when we ran a decent sized company, but I am a little irked that, although his price went down from when we had the company, to me, the rate is still very steep. I feel like he is taking advantage of us. This is why I am going to do our taxes from now on. Our taxes are sooo simple – 2 retirees + SS checks + stock market (with minimal activity) + some interest and dividends… and every few years, there are hurricane repairs we must do because a hurricane has gone though and we write those off if possible. I used to do our own taxes when we had a small mom and pop company, and there is no reason I can’t do them going forward.
Footsox, just a thought. Is the majority of your CPA’s business doing taxes for businesses rather than personal taxes?
If so, is he doing you a “favor” by doing your personal taxes at a “reduced” rate based on your previous relationship, when he would rather spend his time doing business taxes at an even higher rate?
Maybe doing your own taxes will be doing you both a favor.
I would point out that the rules for deducting casualty losses are pretty involved, and have had many changes in recent years. In years when this occurs, you may want to seek out help.
Thanks AJ. Good advice, as usual. We had a huge hurricane last Sept. and fortunatelly for us, our insurance covered almost all of our losses. From my understanding, there is a bill in the House (and Senate) to have Hurricane Ian voted/passed as a qualified national disaster for IRS deductions. Right now the bill is stalled and nothing is being done with it. So, we decided to forgo the minimal losses we had from the hurricane and go ahead and file this year’s taxes. Heaven forbid there is another hurricane in our area anytime soon. But yes, we would then possibly seek some help on the taxes regarding the losses. Thanks.
I would point out that the losses in a casualty aren’t necessarily the cost of repairs - it’s the loss of FMV of the property due to the casualty. There have been cases where a damaged house that is still livable has actually gone up in value (so no loss) because of the lack of livable housing in the area after the disaster.
Then, if you do have a loss, there are still more hoops to jump through - you need to deduct all reimbursements from insurance, charity, grants, etc. that you received from your loss. Then you need to take off 10% of your AGI for the year. The net amount that you get after adjusting for your reimbursements and income is what is potentially deductible on Schedule A. Of course, then all of your Schedule A deductions have to add up to more than your standard deduction for you to actually benefit from taking a deduction.
Given the figures you had posted in previous threads, I doubt you would have been able to benefit from deducting your losses.