8 ms·

Taxes are one of the most powerful incentives in the world. For instance, dumping positions at loss before new years eve might help you with your tax bill sinc

by eb0la 5y ago

Taxes are one of the most powerful incentives in the world. For instance, dumping positions at loss before new years eve might help you with your tax bill since you have losses. And of course, setting up a company in a country where you did buy a lot of spectrum and you have huge losses, effectively creating a tax credit ( https://www.reuters.com/article/telefonica-germany/update-2-telefonica-germany-to-benefit-from-tax-credits-idUSL5E8LHF0N20121017 https://www.reuters.com/article/telefonica-germany/update-2-... )

8ytecoder 5y ago
Important to note that you can’t buy back the same stock/instrument and claim capital loss in most countries
- fragmede 5y ago
  Tis a very important note for as an amature tax-advantageous practice! You can buy something similar, though. eg trade AMD for Intel or some such. Where investors are concerned about markets rather than invidivuals stocks (AMD and INTC are both hardware tech stocks), the notion is that a rising tide lifts all boats, and that large, sector-related good news for Intel is good news for AMD. It's not strictly true, obviously, but it's close enough that the practice is worthwhile.
djrogers 5y ago
Selling stocks at a loss is only helpful in the short term, or if you don’t think those stocks are going back up. If you harvest a loss for a tax deduction on December 31, and the stock goes back up by the end of January so you’d be even, you are way behind – because the loss only comes back to you at your highest tax rate.
- brilee 5y ago
  Figuring out how to defer taxes is equivalent to receiving a free loan from the government, which can be used to profit on the float.
- MR4D 5y ago
  Not quite true. For instance, I could sell my losses in a growth fund only to buy a different growth fund (not the same index though) and I get to stay in the market. Ideally you would do this on day 364 of losses to maximize the tax incentive.
  - djrogers 5y ago
    It's not a tax incentive though - an incentive encourages you to do something, nobody is encouraged to lose money. Also, if one were to do the above, and the growth fund went up, you'd wind up paying taxes on that gain which would offset the tax deduction you took on the loss when you eventually sold it, whereas you could have just stayed in, waited for it to go back up, and you'd be at a wash. If someone followed your advice exactly and sold on day 364 vs staying in they'd lose even more, as by the time the initial investment goes back up (after day 365) you'd be in long-term capital gains territory, which is a lower tax rate. That's why I said it only works in the short term - eventually the gov't is gonna get it's money.
    - hllooo 5y ago
      it can work if you're offsetting existing short term gains and hold the replacement for >1 year, or if the stock never recovers, in which case you pull forward the deduction
    - MR4D 5y ago
      They are encouraging people to sell. Most people wouldn’t care, but if you’re in a high tax bracket and you can sell one to buy another and keep your risk profile roughly the same, you’ll do it. People prefer to pay long term gains and take short term losses. The benefits work in your favor and against the govt. The tax code reflects that, and has for a long time.
    - laurencerowe 5y ago
      While the benefits are limited, there are advantages: 1. Harvesting your capital losses allows you to offset other gains which may be taxable at an earlier date. $1000 today is worth substantially more than $1000 in 10 years time. 'Tax deferred is tax avoided.' 2. You can offset up to $3000 of losses a year against regular income which is taxed at a higher rate. For me at least while it seems worthwhile to switch index funds to harvest losses when the market falls substantially the upsides aren't enough to justify the lock in of using something like Betterment's automatic tax loss harvesting features of their platform by having you invest in many individual stocks managed by their roboadvisor rather than an index fund.
- vmception 5y ago
  > and the stock goes back up by the end of January so you’d be even, you are way behind there are ETFs created for the sole purpose of circumventing this, by providing exposure to the same asset or market forces the wash sale regulation has amendment aimed at preventing this by prohibiting trades of "substantially similar securities", but I don't think it passes muster or has any teeth. you report all the trades to the IRS its up to them to figure out if your UltraShares 3x Inverse Pez Dispenser ETF is substantially similar to the Direxion one
  - bagacrap 5y ago
    direct indexing helps with this as well --- own thousands of individual stocks that collectively act as an index, and trade in some losers for their similar competitors every time you have to realize gains But it's not exactly the case you could pull this off with, say, Tesla, unless there's some ETF that's 99% TSLA (is there?)
    - vmception 5y ago
      > But it's not exactly the case you could pull this off with, say, Tesla, unless there's some ETF that's 99% TSLA (is there?) Don't know, doubt it but its a business opportunity. It’s why there are so many ETFs, take your 20 basis points from investors and work on something else. More likely to find an ETF that hasn't rebalanced and has a large holding of Tesla.
    - whitej125 5y ago
      I direct index... but I don't tax-loss-harvest the index which is what your are describing here (just noting that you can direct index and not do TLH if you want to).
  - whitej125 5y ago
    The wash sale rule has teeth. Currently, trades on a stock or direct derivative (options tied to that stock) will all trigger the wash sale rule. I have never seen an ETF of a single security. Got an example? It would be hard for me to fathom that one could be made and remain economically viable but who knows. ETFs however, do currently provide some loopholes with wash sales. While selling/buying AAPL within 30 days is a wash sale... selling VOO and buying IVV (both which track the S&P 500) within 30 days is currently not considered a wash sale. You see some explanations as to why that currently is (technically those two ETFs are from different asset managers... so they have some different risks, etc). But it looks like the rule just hasn't been amended and maybe the IRS doesn't see this as prevalent enough of a case to change the tax code.
mhh__ 5y ago
This is why Carbon Taxes should be preferred over the state dictating policies to companies.
- acdha 5y ago
  Preferred, but you often need more nuance than that — for example, if a carbon tax is set high enough to deter profitable heavy industrial activities it would require care not to have a disproportionate impact on people who depend on cars, non-electric heating, etc. Those can be mitigated, of course, but it starts to make the tax policy a lot more complicated. The other problem is that we probably had time for a carbon tax when the idea was first advanced decades ago. It's not clear to me that we can afford a gradual approach now when we really need to be doing things like saying you just can't buy new coal burning equipment at any price, for example.
  - Gigachad 5y ago
    Carbon taxes are set up so they cancel regular taxes. So if you use the average amount of greenhouse gasses, you come out equal, if you use more than the average, you come out worse, and if you use less than the average you come out better. So overnight not a whole lot changes but everyone enters a race to use the least greenhouse gasses.
    - acdha 5y ago
      The problem is that people are starting from wildly variable positions. An old person on a fixed income can’t afford to replace their heating, add insulation, etc. quickly unless we have programs to help them; a rich guy who thinks gas is better for cooking or heating up his outdoor dining will blow off the minor increase; etc. The problem is that we wasted 3+ decades on denialism and a lot of pollution comes from things with long service lives. A high-pollution SUV will be polluting in 2040, maybe 2050; a gas or oil heater might run into 2070. At this point we need more than gradual nudges — things like requiring special permits to buy new fossil fuel-burning equipment with heavy subsidies and 0% loans for installing electric alternatives.
- 5y ago

by eb0la 5y ago

8ytecoder 5y ago

Important to note that you can’t buy back the same stock/instrument and claim capital loss in most countries

fragmede 5y ago
Tis a very important note for as an amature tax-advantageous practice! You can buy something similar, though. eg trade AMD for Intel or some such. Where investors are concerned about markets rather than invidivuals stocks (AMD and INTC are both hardware tech stocks), the notion is that a rising tide lifts all boats, and that large, sector-related good news for Intel is good news for AMD. It's not strictly true, obviously, but it's close enough that the practice is worthwhile.

djrogers 5y ago

Selling stocks at a loss is only helpful in the short term, or if you don’t think those stocks are going back up. If you harvest a loss for a tax deduction on December 31, and the stock goes back up by the end of January so you’d be even, you are way behind – because the loss only comes back to you at your highest tax rate.

brilee 5y ago
Figuring out how to defer taxes is equivalent to receiving a free loan from the government, which can be used to profit on the float.
MR4D 5y ago
Not quite true. For instance, I could sell my losses in a growth fund only to buy a different growth fund (not the same index though) and I get to stay in the market. Ideally you would do this on day 364 of losses to maximize the tax incentive.
- djrogers 5y ago
  It's not a tax incentive though - an incentive encourages you to do something, nobody is encouraged to lose money. Also, if one were to do the above, and the growth fund went up, you'd wind up paying taxes on that gain which would offset the tax deduction you took on the loss when you eventually sold it, whereas you could have just stayed in, waited for it to go back up, and you'd be at a wash. If someone followed your advice exactly and sold on day 364 vs staying in they'd lose even more, as by the time the initial investment goes back up (after day 365) you'd be in long-term capital gains territory, which is a lower tax rate. That's why I said it only works in the short term - eventually the gov't is gonna get it's money.
  - hllooo 5y ago
    it can work if you're offsetting existing short term gains and hold the replacement for >1 year, or if the stock never recovers, in which case you pull forward the deduction
  - MR4D 5y ago
    They are encouraging people to sell. Most people wouldn’t care, but if you’re in a high tax bracket and you can sell one to buy another and keep your risk profile roughly the same, you’ll do it. People prefer to pay long term gains and take short term losses. The benefits work in your favor and against the govt. The tax code reflects that, and has for a long time.
  - laurencerowe 5y ago
    While the benefits are limited, there are advantages: 1. Harvesting your capital losses allows you to offset other gains which may be taxable at an earlier date. $1000 today is worth substantially more than $1000 in 10 years time. 'Tax deferred is tax avoided.' 2. You can offset up to $3000 of losses a year against regular income which is taxed at a higher rate. For me at least while it seems worthwhile to switch index funds to harvest losses when the market falls substantially the upsides aren't enough to justify the lock in of using something like Betterment's automatic tax loss harvesting features of their platform by having you invest in many individual stocks managed by their roboadvisor rather than an index fund.
vmception 5y ago
> and the stock goes back up by the end of January so you’d be even, you are way behind there are ETFs created for the sole purpose of circumventing this, by providing exposure to the same asset or market forces the wash sale regulation has amendment aimed at preventing this by prohibiting trades of "substantially similar securities", but I don't think it passes muster or has any teeth. you report all the trades to the IRS its up to them to figure out if your UltraShares 3x Inverse Pez Dispenser ETF is substantially similar to the Direxion one
- bagacrap 5y ago
  direct indexing helps with this as well --- own thousands of individual stocks that collectively act as an index, and trade in some losers for their similar competitors every time you have to realize gains But it's not exactly the case you could pull this off with, say, Tesla, unless there's some ETF that's 99% TSLA (is there?)
  - vmception 5y ago
    > But it's not exactly the case you could pull this off with, say, Tesla, unless there's some ETF that's 99% TSLA (is there?) Don't know, doubt it but its a business opportunity. It’s why there are so many ETFs, take your 20 basis points from investors and work on something else. More likely to find an ETF that hasn't rebalanced and has a large holding of Tesla.
  - whitej125 5y ago
    I direct index... but I don't tax-loss-harvest the index which is what your are describing here (just noting that you can direct index and not do TLH if you want to).
- whitej125 5y ago
  The wash sale rule has teeth. Currently, trades on a stock or direct derivative (options tied to that stock) will all trigger the wash sale rule. I have never seen an ETF of a single security. Got an example? It would be hard for me to fathom that one could be made and remain economically viable but who knows. ETFs however, do currently provide some loopholes with wash sales. While selling/buying AAPL within 30 days is a wash sale... selling VOO and buying IVV (both which track the S&P 500) within 30 days is currently not considered a wash sale. You see some explanations as to why that currently is (technically those two ETFs are from different asset managers... so they have some different risks, etc). But it looks like the rule just hasn't been amended and maybe the IRS doesn't see this as prevalent enough of a case to change the tax code.

mhh__ 5y ago

This is why Carbon Taxes should be preferred over the state dictating policies to companies.

acdha 5y ago
Preferred, but you often need more nuance than that — for example, if a carbon tax is set high enough to deter profitable heavy industrial activities it would require care not to have a disproportionate impact on people who depend on cars, non-electric heating, etc. Those can be mitigated, of course, but it starts to make the tax policy a lot more complicated. The other problem is that we probably had time for a carbon tax when the idea was first advanced decades ago. It's not clear to me that we can afford a gradual approach now when we really need to be doing things like saying you just can't buy new coal burning equipment at any price, for example.
- Gigachad 5y ago
  Carbon taxes are set up so they cancel regular taxes. So if you use the average amount of greenhouse gasses, you come out equal, if you use more than the average, you come out worse, and if you use less than the average you come out better. So overnight not a whole lot changes but everyone enters a race to use the least greenhouse gasses.
  - acdha 5y ago
    The problem is that people are starting from wildly variable positions. An old person on a fixed income can’t afford to replace their heating, add insulation, etc. quickly unless we have programs to help them; a rich guy who thinks gas is better for cooking or heating up his outdoor dining will blow off the minor increase; etc. The problem is that we wasted 3+ decades on denialism and a lot of pollution comes from things with long service lives. A high-pollution SUV will be polluting in 2040, maybe 2050; a gas or oil heater might run into 2070. At this point we need more than gradual nudges — things like requiring special permits to buy new fossil fuel-burning equipment with heavy subsidies and 0% loans for installing electric alternatives.
5y ago