Tax Tail Wagging My PP Dog

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I Shrugged
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Tax Tail Wagging My PP Dog

Post by I Shrugged » Mon Aug 25, 2014 1:54 pm

I'm about at my rebalance bands.  Stocks 34%, Gold 16.5%.  And in a bit of market timing sentiment, I'm ready to make the moves.  But my god the taxes.  Our portfolio is almost all taxable (non-sheltered), and our stocks are all in taxable.  In our three stock index funds, we are looking at built in gains of between 45 to 57 percent.  They were bought in the post-crash period during a big round of tax loss harvesting.  And yes, I'm talking actual gains;  nothing was reinvested and all dividends were distributed so I could control the asset allocation.  There is no new money going into our PP.  We are in distribution mode, but it's big enough that it makes more than we spend.  I know, one percenter problems.  :)

I am going to call my CPA after posting this.  But I'm up for any education or opinions.  How can I tell what this is going to do to my tax bill?  Will it kick me into AMT?  That's the real unknown.  And there are so many phaseouts that by the time I'm done, the true tax rate might be double what the gains rate is.  Plus I have state taxes.  The gains which would be realized are quite large.  Six figures.  Part of me says why rebalance in light of that?  It would take a very good sized stock crash to make me worse off than rebalancing and paying the taxes.

PS:  I have no losses to harvest.

Comments? 
Last edited by I Shrugged on Mon Aug 25, 2014 2:02 pm, edited 1 time in total.
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buddtholomew
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Re: Tax Tail Wagging My PP Dog

Post by buddtholomew » Mon Aug 25, 2014 1:59 pm

Do you have losses in gold that can offset the gains in equities? Do you also plan to rebalance to 25%? You may want to only sell 5% of your equity allocation to minimize the tax implications for 2014 and the remainder in 2015. Your CPA can comment on marginal tax bracket and AMT implications.
Last edited by buddtholomew on Mon Aug 25, 2014 2:01 pm, edited 1 time in total.
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I Shrugged
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Re: Tax Tail Wagging My PP Dog

Post by I Shrugged » Mon Aug 25, 2014 2:04 pm

No, I have no losses.  I just went back and added that to the post.

Everything in taxable was bought during a restructuring after the crash, so it's all up since then.  Yay!  Obviously that's good, but for the rebalancing taxes.
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Tyler
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Re: Tax Tail Wagging My PP Dog

Post by Tyler » Mon Aug 25, 2014 3:10 pm

A good CPA will be faster to actionable advice, but I've used Turbotax in the past to run through different scenarios.  Here's a simplified version:  https://turbotax.intuit.com/tax-tools/c ... ster/    You can check their website for more options.

Also, for a large rebalance you might consider splitting it between two tax years.  So sell half the last week in December, and the rest the first week of January.  That may be able to keep you in a more advantageous tax bracket both years.
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Re: Tax Tail Wagging My PP Dog

Post by pugchief » Mon Aug 25, 2014 3:40 pm

Tyler, splitting over 2 tax years is great advice.

Shrugged, my investments are mostly taxable also, but because I am still accumulating, I have been adding to bonds and gold so my stocks are only at 22.3%. I try to avoid selling anything by adding to the lagging asset(s). That won't work for you , unfortunately, so I have no advice to add.
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Re: Tax Tail Wagging My PP Dog

Post by buddtholomew » Mon Aug 25, 2014 4:35 pm

pugchief wrote: Tyler, splitting over 2 tax years is great advice.

Shrugged, my investments are mostly taxable also, but because I am still accumulating, I have been adding to bonds and gold so my stocks are only at 22.3%. I try to avoid selling anything by adding to the lagging asset(s). That won't work for you , unfortunately, so I have no advice to add.
pugchief, how are stocks only 22.3% of the PP and not considered a lagging asset?
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I Shrugged
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Re: Tax Tail Wagging My PP Dog

Post by I Shrugged » Mon Aug 25, 2014 5:13 pm

I did a couple of hours of research and ran it by the CPA.  CPA punched a couple of different scenarios into their software using our 2013 return.  Bottom line including state taxes would be that we would start out around 20% taxes on the gains.  If the gains get bigger, the Medicare Surtax would kick in, plus some phaseouts, we'd be in the mid-20's.  If I sell any GLD, then the rates are well into the 30's.

So it's a trick box.  I can't see rebalancing with a 20-30% penalty.  I need to sleep on it.
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Re: Tax Tail Wagging My PP Dog

Post by I Shrugged » Mon Aug 25, 2014 5:17 pm

By the way, do you know that the collectibles tax is not simply 28%?  It is 28% max.  It's less if you are in a tax bracket lower than 28%. 
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Re: Tax Tail Wagging My PP Dog

Post by Tyler » Mon Aug 25, 2014 5:49 pm

I Shrugged wrote: By the way, do you know that the collectibles tax is not simply 28%?  It is 28% max.  It's less if you are in a tax bracket lower than 28%.
Thanks for posting that.  The 28% rate is quoted so often I usually take it for granted.  You spurred me to dig around and find this:

http://blog.silversaver.com/taxes-on-pr ... -and-gold/

It's taxed as ordinary income, up to a max of 28%.  That's a big difference!
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Re: Tax Tail Wagging My PP Dog

Post by pugchief » Tue Aug 26, 2014 7:17 am

buddtholomew wrote:
pugchief wrote: Tyler, splitting over 2 tax years is great advice.

Shrugged, my investments are mostly taxable also, but because I am still accumulating, I have been adding to bonds and gold so my stocks are only at 22.3%. I try to avoid selling anything by adding to the lagging asset(s). That won't work for you , unfortunately, so I have no advice to add.
pugchief, how are stocks only 22.3% of the PP and not considered a lagging asset?
Stocks are only lagging very recently because most of the new $ had been going into bonds and until the run-up in bonds over the last couple of months, stocks were still way ahead. My situation is also a bit weird/unique. My salary varies quite a bit from month to month so my 401k contributions are not smooth like they are for most people.
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Re: Tax Tail Wagging My PP Dog

Post by Libertarian666 » Tue Aug 26, 2014 10:27 am

I would definitely consider splitting it over two (or more) years, as that can save a lot in taxes with big gains.
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Re: Tax Tail Wagging My PP Dog

Post by barrett » Tue Aug 26, 2014 10:57 am

Shrugged,

Maybe just sell your stock position down now to whatever doesn't kill you in tax terms, and rebalance evenly into the other three assets? Let's say you end up with a 31/23/23/23 allocation, for example, and then you could reevaluate after the 1st of the year. You would at least be taking some gains in stocks.

I am curious if people on this forum see this as exposing a flaw in the PP. The distribution phase of the PP seems to require more savvy than the accumulation phase, at least when you are dealing with taxable accounts. Good luck with whatever you decide.
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