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Re: Two observations
Posted: Thu Apr 07, 2011 11:10 pm
by MediumTex
melveyr wrote:
Posts like this make me wonder about the ETF tax loss harvesting. I'm talking about when one sells VTI and then buys SPY in order to harvest a loss in VTI.
What do you think MT? Does anyone else do this? I have thought about using this strategy but haven't yet.
The strategy is definitely bending the rules...
What I'm talking about are people who cite 29 different Code sections as part of a unified theory that individual U.S. citizens are actually not required to pay income taxes at all.
What you are describing above is a normal tax issue that will normally have a clear answer, one way or another. I don't know the answer, but I'll bet you could find countless discussions on the internet addressing this common situation with helpful thoughts on the risks of the various possible ways of handling it.
Maybe moda or someone else will have an opinion on the situation you are describing, but it's not the type of thing I was referring to. I was talking more about the kind of people who advised Wesley Snipes not to file any tax returns for several years and then suggested he flee to an African village to escape capture by the U.S. authorities.
Re: Two observations
Posted: Fri Apr 08, 2011 2:34 am
by craigr
melveyr wrote:
MediumTex wrote:
craigr wrote:
I know someone personally that served five years in a federal prison on tax evasion for doing what Schiff's father recommended. It's a really bad idea.
As a person who is not just a lawyer, but a
tax lawyer, I can say unequivocally that most people like Schiff's father just don't seem to get that the people who enforce the rules (the IRS) are also the people who make the rules (the IRS) (Congress typically grants the IRS very broad discretion in creating regulations for the Code provisions they enact), and thus anyone who attempts to challenge them are at an extreme disadvantage (courts also tend to defer to the IRS's positions in many areas). It simply makes no sense to pick a fight with an entity like this. It's pointless. Even if you have airtight arguments, the IRS has more time and resources, as well as the ability to change the rules midstream.
It's much better to develop tax strategies that are consistent with a conservative interpretation of the rules (and which are generally accepted by the IRS). By doing this you are able to save money AND stay out of trouble.
I notice that some people have a tendency to get hung up on abstract notions of "rights" and overly technical arguments that they believe automatically make their cases persuasive. What they seem not to understand is that "rights" are meaningless outside of some structure in which they may be enforced, and no matter how much YOU like your arguments, if a court doesn't recognize them or find them persuasive you are out of luck.
Posts like this make me wonder about the ETF tax loss harvesting. I'm talking about when one sells VTI and then buys SPY in order to harvest a loss in VTI.
What do you think MT? Does anyone else do this? I have thought about using this strategy but haven't yet.
The strategy is definitely bending the rules...
My approach to tax loss harvesting is to sell the fund, wait 31 days, then buy the same fund back again.
Why?
1) I don't want to be stuck with a substitute fund that may get some gains in the 30 day wait that I now feel obligated to hold that isn't exactly what I want.
2) Flip a coin on whether during the 31 days whether the markets go up or down. I've come out a winner as much as a loser in the past. Sometimes my having that particular tax loss harvest block sitting in cash during that time saved me from further losses if I had just swapped funds. There is no guarantee that the markets are going to turn around on the exact day you sell out to sit in cash for the wash sale rules.
3) By doing it this way there is no ambiguity in the tax code for me. This is perfectly well established by IRS rulings so I don't need to fret about needing to argue my case in front of an auditor or tax court. That to me is worth it alone. It is generally a bad idea to make yourself the test case for any new area of law.