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Lily
Follower ○○○

Tax as trading cost

I often see people post their trading here. Some seems in and out in a period of weeks or less. Some seems all in and all out for the particular holding in one tranche.

I can see people are selling if it's not performing, or to pocket some capital gains if it does great.

I am not sure if people are only doing frequent trading in tax deferred accounts.

20%-30% short term CG tax is very costly. Somehow, it's easier for me to harvest loss than gain mentally, though it's not necessary a good thing.

But does tax play a factor for you when you sell in taxable account?

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12 Replies
Intruder
Participant ○○○

Re: Tax as trading cost


@Lily wrote:

I often see people post their trading here. Some seems in and out in a period of weeks or less. Some seems all in and all out for the particular holding in one tranche.

I can see people are selling if it's not performing, or to pocket some capital gains if it does great.

I am not sure if people are only doing frequent trading in tax deferred accounts.

20%-30% short term CG tax is very costly. Somehow, it's easier for me to harvest loss than gain mentally, though it's not necessary a good thing.

But does tax play a factor for you when you sell in taxable account?


Investors can offset cap gains by cap losses. I have carry over losses from 2008 that have eliminated any LT cap gains over the last 10 years. For some investors cap gains are just another cost of investing.It is my understanding that there are different rules for professional traders who write off cap losses.

Investors who hold multiple lots of a security can select which lot to sell to minimize or eliminate gains.

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DJANG0
Explorer ○○

Re: Tax as trading cost

All the trades I've posted have been in retirement accounts. I pay a great deal of attention to taxes in taxable accounts, and usually only sell to harvest a tax loss.

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Intruder
Participant ○○○

Re: Tax as trading cost


@DJANG0 wrote:

All the trades I've posted have been in retirement accounts. I pay a great deal of attention to taxes in taxable accounts, and usually only sell to harvest a tax loss.


I use a Roth IRA to trade FAANG stocks such as AAPL, AMZN, NFLX to capture short term gains without taxes. Costs $5 a trade at VG brokerage.

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ECEPROF
Participant ○

Re: Tax as trading cost


@DJANG0 wrote:

All the trades I've posted have been in retirement accounts. I pay a great deal of attention to taxes in taxable accounts, and usually only sell to harvest a tax loss.


Besides, I also agree with Intruder's comments although I do not trade with FANNG stocks.

Another point is the tax bracket. I eliminated the RMD requirement using ROTH conversions and forced myself to a lower tax brackets during the last four years. So, I do not have to pay much tax on the long term CG besides I think that I pay low taxes on the dividends also - no way near 20-30%. I am using my big schedule-E losses due to a big repair work in my rental unit as an advantage for tax harvesting this year. This brings up another point. One has to look at the whole tax return but not just one part of the tax return.

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DJANG0
Explorer ○○

Re: Tax as trading cost

Intruder, but if your stocks go south, they would be better held in taxable. 

I guess I'm just more of the "glass half empty" type. I don't invest in individual stocks, but if I did, they would be held in taxable.

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whocansay
Follower ○○

Re: Tax as trading cost

My taxable is 4x my IRA, so I trade mostly in taxable acct. I never sell short term for gains and am very careful about tax issues. Those with some income have to watch out for many things - Obamacare tax, Medicare-IRMAA, managing around the tax brackets etc. 

Those with lower income or with majority of assets in tax-free/deferred accounts have fewer tax issues to worry about. I'm sure many on these forums are in that category.

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Intruder
Participant ○○○

Re: Tax as trading cost


@DJANG0 wrote:

Intruder, but if your stocks go south, they would be better held in taxable. 

I guess I'm just more of the "glass half empty" type. I don't invest in individual stocks, but if I did, they would be held in taxable.


Huh ? Fang stocks periodically go south which is the time to buy more, not sell. On feb 8, 2018 AAPL was at 160. On Nov 3 it was at 231. Then it dropped to 147 on Jan 3, 2019. Today it’s at 245. Best reason to hold FAANG stocks in Roth is gains will never Leave a footprint on 1040. Never need to have carry over losses to offset gains. And dividends paid from Roth have 0 tax rate.

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ECEPROF
Participant ○

Re: Tax as trading cost


@whocansay wrote:

My taxable is 4x my IRA, so I trade mostly in taxable acct. I never sell short term for gains and am very careful about tax issues. Those with some income have to watch out for many things - Obamacare tax, Medicare-IRMAA, managing around the tax brackets etc. 

Those with lower income or with majority of assets in tax-free/deferred accounts have fewer tax issues to worry about. I'm sure many on these forums are in that category.


My ROTH account is 4X my taxable account - just reverse so that most of dividends and CGs will not have any effect on my taxes. I do not worry about any of " Obamacare tax, Medicare-IRMAA, managing around the tax brackets etc. "

After all, if Romney can do it, every one can do it.

One more thing. Keeping your "taxable other income" low, you can also reduce the taxable part of your SS income. ROTH income does not count.

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ESAR
Explorer ○

Re: Tax as trading cost

@ECEPROF 

"I am using my big schedule-E losses due to a big repair work in my rental unit as an advantage for tax harvesting this year"

I did not know you can use your schedule-E losses to offset cap gain coming out of equity trading. Is this an active rental or have you sold the rental and captured a loss?

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ctyankee
Explorer ○○○

Re: Tax as trading cost


@whocansay wrote:

My taxable is 4x my IRA, so I trade mostly in taxable acct. I never sell short term for gains and am very careful about tax issues. Those with some income have to watch out for many things - Obamacare tax, Medicare-IRMAA, managing around the tax brackets etc. 

Those with lower income or with majority of assets in tax-free/deferred accounts have fewer tax issues to worry about. I'm sure many on these forums are in that category.


I'm not sure what the logic is about *not* taking short term gains.  Anyone with a portfolio of individual stocks will have both winners and losers.  If it makes sense to take a profit on a high-flier or take a loss on a stock whose fundamentals have significantly changed, then do so rather than let the tax-tail wag the dog.  Additionally, both short-term losses and long-term losses will offset short-term gains and long-term capital losses (after the $3,000 offset against ordinary income) carry forward indefinitely ... so, do what makes sense, first and foremost. 

ctyankee 

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whocansay
Follower ○○

Re: Tax as trading cost

. . . Also

You may gather some useful info from responses to your post, but each person's investing and tax situation is different. Ultimately you have to do what is the right thing to do for your specific situation. None of those responding know anything about your specific situation.

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ECEPROF
Participant ○

Re: Tax as trading cost


@ESAR wrote:

@ECEPROF 

"I am using my big schedule-E losses due to a big repair work in my rental unit as an advantage for tax harvesting this year"

I did not know you can use your schedule-E losses to offset cap gain coming out of equity trading. Is this an active rental or have you sold the rental and captured a loss?


Not directly.

Active Rental. We rent one unit. Our son rents four units in this area.

Your AGI comes after adding these losses and gains. So, it helps indirectly to reduce your AGI and taxable income. So, Schedule E loss is useful to reduce your tax. Because of high property taxes and high condo assessments in Chicago, I get Schedule-E losses every year because the rent in a competitive environment does not usually cover all costs.

You can use a rental agency and get higher rent but you end up paying one month rent to them every time. Besides, the tenant will not stay for long. In all our rental units, they move because of the change in their lives - like having children or moving to another city. Back in 2009, my son's tenant lost his job but my daughter-in-law found a job for him. We do not bother them and they do not bother us (unless there is a repair problem).

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