I just wrote a rather large check to the IRS because of long term capital gains on stocks. Among the largest winners was BOFI, CELG, and CMG. Bummer, huh?
However, my kind CPA congratulated me on the nice gains and reminded me that taxes will always be a result from successful investing.
My deep thanks to Saul and many others who invest so much time and energy in unselfishly sharing the results of their research and hard work that goes into following the stocks discussed on this unique board.
Jim,
I’ve mentioned before that I had a special tax situation due to a large charitable gift from my mother’s estate when she passed away. Per tax law, I was able to spread it across five years. 2015 was the last year to consume the deduction.
But, my accountant had failed to inform me that there was very little tax benefit left to consume. In December I asked her what kind of tax bill I was looking at and a just about fell over. Between taxable capital gains and a taxable conversion of a Traditional IRA to Roth, I was facing an enormous bill.
What to do?
First, I recharacterized the Roth conversion back to a trad IRA. Perfectly legal if done in the same tax year. But still, the bill was very big. At the time I was sitting on some substantial paper losses in a taxable account since the market deterioration that started in August. Just before things started to meltdown I had sold some things in which I had become overweight and reallocated in order to rebalance and spread risk. This action realized more taxable gain.
I felt confident about the investments, but they were down a bunch by December. I got clarification about “wash sale” rules from my broker, and sold a bunch of good investments at a loss to offset some of the earlier gains. After 30 days or more I bought most of them back at a lower price than I sold them at. Most of them are now moderately up.
I wouldn’t necessarily recommend the strategy of selling good investments in order to realize a tax loss. Nobody can time the market, and I may have lost the opportunity to buy them back later at a lower price, or even the price I sold at. But, it worked out this time for me. Also, I didn’t just sit and wait out the full 30 days, there’s always some good investments about so I put some of the money in positions I had never held before.
I was able to very significantly reduce my tax burden.
I got clarification about “wash sale” rules from my broker, and sold a bunch of good investments at a loss to offset some of the earlier gains. After 30 days or more I bought most of them back at a lower price than I sold them at.
Keeping in mind that when you (hopefully) sell them at a profit some day the gain (and taxes) will be that much greater.
Maybe, but maybe not. Remember, I also had a big “regular income” due to the Roth conversion which I also undid. Could be that I’ll take out that much cash from taxable sources in the future, but by carefully planning tax-free Roth withdrawals along with taxable Trad IRA and Trust account withdrawals hopefully I can keep myself out of high-bracket tax territory.
On the other hand, if my investments really perform all that well, maybe I won’t mind the bite so much . . .
