Personal Investments • Retired early and need to sell some taxable.. Average cost

So, all your shares have gains, which isn't all that uncommon... But using the FIFO cost basis method will likely lead you to sell shares with the largest gains in your portfolio. This is probably the least optimal from a tax perspective. You'd probably be better off selling shares with the smallest gains, to minimize the amount of capital gain.

Spec ID would allow you to have pinpoint control over which shares to sell.

If your tax preparer doesn't understand all of this, then it might be time to look for a new tax preparer.

Regards,

Thanks for this retired@50.. What I didn't understand was the main goal is to defer taxes as long as you can.. If you still own at death, it's stepped up and no tax ever on that gain for the heirs. No one told me that..

There are two advantages with my tax lady.. She only charges $40, and she forces me to research myself.. Who pays their tax preparer to TLH? I should be preparing my own taxes, considering my investments are all in vanguard MF's..

As far as selling taxable, I neglected to consider my dividends and capital gain and think harvesting these might be enough for me to survive, but I still feel unsure selecting lots after the SpecID kicks in..
When the web site begins to show lots, what criteria am I using to decide which lots will bring the least tax burden? Only the lowest in the gain/loss column? Or do I also need to pay attention to the maturity or age and only sell shares that are over 1 year old??

Thanks again..

You would need to anticipate your taxable income for the year. Using SpecID allows you to manage how much of the money you take out is basis vs appreciation.

For example:

Say you need $10k from taxable this year. You estimate you will have only $5k more income before you move out of the 0% long-term capital gains bracket and into 15% bracket. Using SpecID you could sell a lot you bought for $5000 and has appreciated another $5000. This would result in $10k for you with $5k basis (not taxed) and $5k capital gains, taxes at 0%. On the contrary, using FIFO you might sell shares you bought at $1k that appreciated $9k and you will have $1k basis, $5k LTCG @ 0% and $4k in capital gains at 15%. In both cases you get the $10k you need but in the latter you would owe more taxes unnecessarily.

You might also have a year where your have a much larger gap til your LTCG rate goes up and could take advantage by selling highly appreciated shares in this years and less appreciated shares in years where you might need more income. You can also tax gain harvest in years where you don't need more money but still have remaining 0% LTCG bracket to fill up by selling highly appreciated shares and repurchasing immediately to step up your basis while not paying any taxes due to the remaining 0% bracket.

Statistics: Posted by blaugranamd — Sun Mar 17, 2024 9:31 am — Replies 9 — Views 1096

---