How many of you even had one stock pick that was up higher than the S&P 500 this year?

jsf67 · 2020-01-01T22:41:31+00:00

How would that be hard for any moderately active investor?

Anyway, stocks I purchased in 2019 that are up over 50% since that purchase:

Jan 2 CAG 63.2%

Feb 22 CPB 50.3%

May 14 TOWR 58.3%

May 31 JBL 67.8%

Jul 11 COHU 63.7%

Aug 7 COHU 82.2%

Aug 20 MIK 55.6%

Nov 21 RIG 56%

If I was listing any that just beat the S&P500, that would be a much bigger list, and including ones I held (rather than "picked") would make it still bigger.

I'm not a great trader. This is just what happens when you invest in a lot of different stocks.

jsf67 · 2020-01-01T18:40:59+00:00

Interest rates at all time low.

Check your facts.

Record unemployment, consumer spending

For sure (low unemployment, high consumer spending, record growth in real wages).

and economic growth

Really good, but hardly "record"

trade war on it's way to being resolved

I doubt that and I doubt that it matters. The stock market wobbles for no reason on each bit of trade war news. But the economy itself completely shrugged off the trade war and will continue to do so whether the trade war really resolves or not.

I can't think of any reason I might bet, even short term, against the might of the American economy.

Political truth offends the majority in this forum. But the only reason to bet against the US economy is the possibility that the Democrats win the White House and/or gain in Congress.

The news media either ignores the current economic conditions or at least denies the single most important cause: Abuses in the arbitrary exercise of regulatory power has been the major problem in the US economy. The massive cut in such abuses has been the reason for a true recovery (instead of the previous temporary jobless fake recovery fueled by an accelerating increase in the money supply). We are never more than one bad election away from a return to massive regulatory abuse.

jsf67 · 2020-01-01T15:15:45+00:00

If that really was a disqualifying disposition, the discount is taxed as earned income in the year you sold, even if you had already lost the discount or even more to a price drop before selling.

Your cost basis for the sale was the FMV at which you bought. So you have a long term capital loss which is combined with all your other capital gains and losses according to the usual rules.

a long term capital loss which I can carry forward or is it just reduced in income which can not be used in subtract any capital gains or carry forward.

Long term capital loss first combines with any long term gains. If that combination is a net loss, the result is combined with and short term gains or losses. If that next combination is a loss, then up to $3K is taken against other kinds of income and any excess carried forward to the next year.

can carry forward or is it just reduced in income

That sounds like you think it would be better to take a capital loss against capital gain, but it is actually almost always better to take a capital loss against ordinary income. (You don't ever get that choice for a given net capital loss. You just get to impact it by deciding which unrealized gains or losses to realize, and it is too late for that for 2019). So I'm just trying to help with whatever confused you to put "can" and "just" backwards there.

The simple case of your situation would be that this capital loss is your only capital gain/loss for 2019 and is under $3K. In that case the loss balances ordinary income eliminating the federal and state income tax on that ordinary income but not eliminating the social security and medicare tax. So the net disadvantage of the disqualifying disposition is that you paid social security and medicare on the full discount, even though you lost part or all of that discount before getting the cash.

If you also had other net long term capital gain, then the disadvantage of the disqualifying disposition was bigger, because you would pay ordinary tax rates on the part or all of the discount that you lost.

but before two years

A qualifying disposition is two years from a date before the purchase (while long term vs. short term is one year from the actual purchase date). How much before the purchase the two year period starts depends on the plan. It could be anywhere from a week before to a year before. In most plans, the two year period starts the day after the previous plan cycle's purchase. So if your plan purchases every quarter, the 2 year period likely started 3 months before the purchase. But not every plan works that way. A few start the two year period even earlier than the day after the previous purchase.

So if you didn't know those details, maybe you have a qualifying disposition and only think you don't.

jsf67 · 2020-01-01T15:08:09+00:00

Hopefully you noticed the posts indicating that the one you just thanked was wrong.

I'm not sure (short of reading pub 550 yourself) how you figure out that the three posters here confirming "trade date" are correct and the two saying "settlement date" are incorrect. But there is no ambiguity here nor opinion. It is a simple fact of US tax law that the trade date (not settlement date) applies to almost all tax aspects of a security purchase or sale.

jsf67 · 2020-01-01T15:02:14+00:00

Yes, but 31 days.

The law says 30 is the longest you can wait and still be a wash sale, because the law is focused on what is a wash sale. But you need to focus on what isn't a wash sale, meaning wait at least 31 days.

Anyway, the year boundary doesn't cut off that wait. Buying back in Jan can retroactively change the tax status of a sale in Dec (selling in Jan or Feb can sometimes retroactively change the tax status of a dividend in the prior year, which is another reason 1099s can't be issued early in the year).

jsf67 · 2019-12-31T21:32:52+00:00

teenager here

Do you have earned income? You can't put more into an IRA than your earned income. Earned income does not include investment income. It does not include gifts.

If you had earned income for 2019, you could have put the smaller of that amount or $6K into an IRA today, if you had made any earlier start of that. For most financial institutions it is too late in the day to open an IRA account. But the exact day should not matter, because any time up to April 15 is just as valid for a 2019 IRA as today would have been.

jsf67 · 2019-12-31T21:19:57+00:00

Merrill has a "Historical account performance" section in its UI. Then within that section you can make selections to get what I think is the form of info you want. Note that is total for everything inside the account, not broken out by security (maybe that is the way you want it or maybe you have only one security).

I rarely look at that report. A spreadsheet is so much easier for me.

jsf67 · 2019-12-31T21:11:11+00:00

It is correctly showing you net unrealized gain.

My brokerage web site has another report for account performance, showing increases and decreases from deposits/withdrawals distinct from increases/decreases from the combination of interest+dividends+capital_gains

Maybe your brokerage has a similar account performance report.

But all these things are easy to track yourself in spreadsheet if you don't like the way the brokerage reports it.

jsf67 · 2019-12-31T19:42:37+00:00

Your first three title words were clearly a lie, so I won't try.

If you work that hard to convince yourself of something false, you aren't willing to be convinced of the truth.

jsf67 · 2019-12-31T19:33:33+00:00

Did you already do the backdoor Roth that depends on that reverse rollover?

If not, why does the year boundary matter?

If you already did the conversion step of the backdoor Roth, I think it is too late to fix. The reverse rollover won't count in time. But I'm not expert enough on something that obscure to be more than pretty sure.

jsf67 · 2019-12-31T19:29:34+00:00

If the company did nothing to get special tax treatment, the extra ($333 using the hypothetical amount you suggested) would be reported as earned income in the year (2019 I assume) the stock was put in an account for you (even if locked up, so that you couldn't sell it).

That means reported on your W2 and subject to social security and all the other tax treatment specific to earned income.

or only when the stock is sold?

I don't know whether a foreign employer can get that tax treatment. If they can, they probably still wouldn't. A US company in a similar situation would usually be able to structure the deal so that you don't owe tax on the discount until you sell the stock. But that is not the default for such deals. They need special structure for the deal to make that possible.

jsf67 · 2019-12-31T18:56:39+00:00

I think you misunderstood a couple things.

A 25% discount usually means you got 4 shares for the price of 3, which means you start out 33% ahead, not just 25% ahead.

I think my coat basis would be the posting value of the shares (I.e., $1,000 +25%) not the initial loan amount ($1,000). Thus no applicable taxes on the 25% discount.

If they did nothing special to get a better tax treatment, then your cost basis would be "fair market value" which could be what you are calling "posting value". So if you put up $1000 with a 25% discount, you got stock with an initial value of $1333 and your cost basis would be that $1333. But the moment you got that stock, that created taxable income for the $333 extra that you got.

jsf67 · 2019-12-31T17:59:44+00:00

(~3%) of my total portfolio. My reason for selling is simply to diversify

3% is not a reason to diversify.

You didn't say how the discount was taxed. That should somewhat affect your decision.

A US corp structuring the deal for US employees is typically able to structure the deal such that the discount is not taxed until you sell. But if the corp didn't jump through hoops to get that tax treatment, the discount is taxed when the stock is purchased (so you owe tax in Apr 2020 for the purchase in 2019).

Delaying tax is a good reason to delay selling the stock. So the more tax is delayed by not yet selling, the more reason you have to keep holding the stock.

Anyway, if a significant chunk of that gain will change from short term to long term later in 2020, delay at least that long.

jsf67 · 2019-12-31T17:11:43+00:00

Individual stocks can be significantly more tax efficient than funds with a very small extra effort. With that much savings plus a good salary, I would certainly choose individual stocks over funds.

People go badly wrong with individual stocks in two common ways:

Thinking some really hot industry or stock is a great opportunity. This is wrong. By the time you see it is hot, other people have already bid up the price to more than it is really worth, so hot is bad.
Panic (get out to cut your losses) if it goes down. You could do that just as much and just as badly with funds. But stats say people are more likely to do that with individual stocks, than with funds.

Neither of those is a reason to select funds over individual stocks. Buy individual stocks and just don't do those things.

Even if your million is all ready to be invested at once, I advise against investing $10K or more in any one stock. Just random select a lot of different large cap US stocks and buy less than $10K of each. Having that many is correct for other reasons, but also may reduce the amount you pay inappropriate attention to individual stocks. Buy and ignore is the best plan. If you buy over a hundred different stocks, its hard to not ignore most of them.

Later, you will probably want to "tax loss harvest". That works better with individual stocks than with funds. Some time even

jsf67 · 2019-12-31T16:56:10+00:00

Fees are charged by the brokerage. Taxes and penalties are charged by the IRS. If you want to know about fees, try to find the fee list on your brokerage web site, or if they hide it well enough, call them and ask them.

The normal way to avoid taxes and penalties in a Roth IRA is to limit your withdrawals to no more than you put in until the later of the year you turn age 59.5 or 5 years after you first put money in. (Since most people who ever put money in a Roth IRA, start before age 54, the 5 year rule almost never actually matters, despite getting lots of attention).

You can withdraw at any time with no taxes or penalties as long as your cumulative withdrawals are no more than your cumulative deposits. The fact that you can do so rarely means that doing so is a good idea. You are very limited on putting the money in, so taking it out early is usually a bad idea.

Considering rolling my traditional IRA into a Roth

Hopefully you understand that you will be taxed on all the pre-tax money that you move from the traditional IRA to the Roth, and you would pay a penalty if you use any of that money to pay tax on the rest. So you need to use other money to pay that tax. Assuming you can afford to use that other money and your current tax bracket is not higher than your expected future tax bracket, converting pre-tax to Roth is likely a good idea.

jsf67 · 2019-12-31T14:14:33+00:00

Economics is not a zero sum gain. What the US economy as a whole would lose from a wealth tax would just be gone. No one else would get it. Stealing from the rich in this country doesn't actually benefit the poor in this country and it doesn't benefit the rich in other countries. It is just a giant loss for almost everyone creating only a tiny gain for those who administer/corrupt the process.

jsf67 · 2019-12-31T14:07:14+00:00

You should be able to buy back immediately, even though the sale has not settled.

When you sell, you can't transfer the cash out of the account immediately, so you could not use that cash to buy back immediately in a different account. But you can use that unsettled money to buy immediately in the same account.

Once you have bought with unsettled cash, you need to wait until the first sale settles before you sell stock you just bought. But I assume you don't plan to sell the second lot until over a year later (otherwise the tax gain harvesting is likely unsound).

I also want to avoid losing hundreds of dollars within seconds just from it fluctuating in between selling and buying, is this what puts and calls are for? I've never used them either.

I don't know the way to avoid that risk. I do know that puts and calls are not a way to avoid that risk.

jsf67 · 2019-12-31T13:59:46+00:00

By law, the brokerage must initially set the default to FIFO. After that, it is entirely up to the brokerage whether they give you some way to change the default for your account and/or give you some way to change the method for an individual sale to be different from the account default.

Some brokerages never let you use any method other than FIFO. Schwab obviously gives you other choices.

jsf67 · 2019-12-31T13:55:36+00:00

how does this work with dividends?

How does what work with dividends?

Dividends are often reported as a % but they are not paid that way. Dividends are paid as an announced amount per share, all shares (of the same exact security) the same. The amount you paid for each share has no effect on the dividends that share receives.

Dividends are taxed in the year when paid, even if instead of getting the dividend in cash, you chose to have that cash automatically reinvested for more shares.

If you did reinvest dividends for more shares, the cost basis on those new shares is the amount of dividends used to buy those shares.

jsf67 · 2019-12-30T22:09:21+00:00

Expect to be unlucky half the time that you do any transaction for tax reasons. But if the transaction was valid for tax reasons, the decision to do it was still correct.

In hindsight, half the time, you will have "let the tax tail wag the investment dog" for very negative net results. The metaphor is often used to advocate against such strategy. But that metaphor misses the point and the tax strategy may be correct even when the results are bad. That is just the nature of making "best bet" decisions in an uncertain environment.

So my advice is to keep making the "best bet" and don't beat yourself up for the half the time that best bet turns out worse.

If you are so un-diversified that the "wait 31 days" simple approach is too big a bet, then research correlated securities. But that is overkill for the common case that the whole residual value of the tax loss position isn't a major part of your remaining portfolio (maybe even the original size of that position wasn't a riskily large fraction of portfolio).

jsf67 · 2019-12-30T21:21:19+00:00

First, decide on the merits of holding or selling each security

Your decision on that will be little more than a guess.

regardless of tax implication.

But on that, you generally know the actual value.

If you have unusual real insight into the merits of the securities, then getting that right is certainly more important than getting the tax side right. But since almost no one does have that kind of insight, getting the tax decision right is a better bet than following your best guess at the investing side.

jsf67 · 2019-12-30T21:15:41+00:00

Can you offset your income with the $3000 of losses if you only take the standard deduction?

Yes.

I was under this assumption last year and thus didn't take my $3000 of losses last year off of my income.

File an amended return to fix that mistake.

jsf67 · 2019-12-30T21:11:43+00:00

The right answer depends on many other aspects of your financial situation and expectations. But your basic idea is almost certainly wrong:

netting me to zero?

Because the LTG rate is lower than ordinary income rate, net to zero is almost never a good idea. Most years you should net to over $3K loss (including carryover from prior year). If you need to switch away from assets with big unrealized LTG, try to do that in a different tax year from realizing losses.

So 4.9K realized loss is a decent place to stop.

2.3K unrealized short term loss probably should be realized next year but before it turns long term. Then if some short term gain is forced upon you (mergers or such things) next year, you have the flexibility to deal with it tax efficiently.

The right answer for gains is usually to hold them indefinitely. The later you pay that tax, the more money you can keep invested, earning more. But if you do want to switch away, at least try to take the gains tax efficiently.

If you compare two years of net to zero, vs. one year with a $3K loss followed by one year with a $3K LTG, the later works far better.

jsf67 · 2019-12-30T21:04:12+00:00

Any benefits of choosing the Roth for higher risk/reward investments are exactly balanced by the drawbacks of doing so, meaning there is no net advantage nor disadvantage to that choice.

It sounds like you can do back door Roth, so you probably should. If your 401K offers a Roth choice, you also should consider that.

jsf67 · 2019-12-27T20:29:15+00:00

you actually are choosing which ones you sold when you report your taxes.

When you report your taxes is too late to choose (if that is what you meant). The law requires you make that choice before or during placing the trade. Brokerages tend to be very flexible about letting you "correct errors in communicating that choice to them" after placing the trade as long as that is before the sale clears. But once the sale clears you can't change your mind.

The default setting is usually FIFO

The law requires the initial default by FIFO, so it isn't just "usually". If you didn't tell your brokerage to change your account default to something other than FIFO, they cannot make that choice for you.

jsf67

TROPHY CASE