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Old 01-02-2013, 07:52 PM   #21
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That is why I have been selling funds in my taxable accounts and buying back similar funds - I get to step up the tax basis of my taxable investments at 0 cost. While it seemed like a good idea at the time given that capital gains rates might increase, now that the 0% capital gains tax rate has been made permanent I might have been better off doing a Roth conversion.
You and I were doing the same thing at the end of last year, but I am glad I took the gains, even though not all will be at 0% tax. It was weird having coffee one morning and seeing all these sales happen then boom! stocks bought back at a lower price within a half hour because of "cliff" freakout.

But I retained the stocks with a new basis so didn't miss out on rallies like today. I'm good with that.
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Old 01-02-2013, 08:24 PM   #22
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I wonder if Warren Buffet has heard about this.
Talk about feeling like you are cheating the system. Ole Warren pays 0% tax on his $40billion BECAUSE HE NEVER SELLS anything. Well, at least Warren will pay his fair share to our Federal Tax system when he dies. Oh wait, he is going to take advantage of the unlimited Charitable deduction, and never pay ANY SHARE, let alone his "fair share". Warren $40,000,000,000, US Tax system $0. But he can give advice about how much other people should pay in Federal Taxes. And people give credence to his advice. Warren Buffet, THE BIGGEST HYPOCRITE IN THE WORLD!!!!!

Don't ever feel guilty about not paying tax because you are in the 15% bracket, unless you start lobbying for higher tax rates for others.
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Old 01-02-2013, 08:42 PM   #23
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I also only recently learned of this nice little freebie, so I tax-gain harvested some of a well-performing fund in my taxable account which, although it's been doing well over the years, doesn't fit into my current investment policy statement. I held off on selling more, but now that it appears this has been made permanent I think I'll sell some more, then so on year after year until it's all re-allocated.

I only wish I had learned of it last year. Oh, well. It's only been since DW ER'ed that we've been in the lower tax bracket, which has only been the last two tax years. Bear in mind that the rule is based on taxable income, not AGI, which is unusual.

Since wash sale rules only apply to losses is there any reason not to tax gain harvest every year by selling a portion of a well-performing fund until the gain hits the top of the 15% bracket, then buying it right back? Trading costs aside, that is.

[edit - I now see the answer above, sorry]
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Old 01-02-2013, 09:45 PM   #24
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While it seemed like a good idea at the time given that capital gains rates might increase, now that the 0% capital gains tax rate has been made permanent I might have been better off doing a Roth conversion.
As we saw just this week in DC, policies can change quickly. I'm remaining flexible by not putting all my bets on the continuation of the Roth rules (I doubt they'll tax the withdrawals, but I could see the withdrawals, or some percent of 'em, as counting when computing tax rates on other income (incl SS), or for qualifying for various subsidies, etc). A mix of tIRA, Roth IRA, and after-tax accounts gives the best flexibility to reduce taxes or capture the flow of benefits to be rained down on particular favored subsets of the populace in future years.
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Old 01-02-2013, 10:05 PM   #25
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I also had that funny feeling at first, but believe me, it is one of those things you get used to very quickly. You're not cheating, it's designed that way, so enjoy it.
Yes, people do get used to a granted privilege very quickly, and soon it becomes a birthright. Then, no politician dares take it away, until the situation turns into something desperate. That's how many countries get into trouble.
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Old 01-03-2013, 07:03 AM   #26
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Talk about feeling like you are cheating the system. Ole Warren pays 0% tax on his $40billion BECAUSE HE NEVER SELLS anything. Well, at least Warren will pay his fair share to our Federal Tax system when he dies. Oh wait, he is going to take advantage of the unlimited Charitable deduction, and never pay ANY SHARE, let alone his "fair share". Warren $40,000,000,000, US Tax system $0. But he can give advice about how much other people should pay in Federal Taxes. And people give credence to his advice. Warren Buffet, THE BIGGEST HYPOCRITE IN THE WORLD!!!!!

Don't ever feel guilty about not paying tax because you are in the 15% bracket, unless you start lobbying for higher tax rates for others.
I wasn't aware that we are taxed on our net worth, thanks for clarifying that.
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Old 01-03-2013, 08:42 AM   #27
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Some people here, haven't had to pay federal income taxes in more than 23 years.
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Old 01-03-2013, 09:53 AM   #28
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Talk about feeling like you are cheating the system. Ole Warren pays 0% tax on his $40billion BECAUSE HE NEVER SELLS anything. Well, at least Warren will pay his fair share to our Federal Tax system when he dies. Oh wait, he is going to take advantage of the unlimited Charitable deduction, and never pay ANY SHARE, let alone his "fair share". Warren $40,000,000,000, US Tax system $0. But he can give advice about how much other people should pay in Federal Taxes. And people give credence to his advice. Warren Buffet, THE BIGGEST HYPOCRITE IN THE WORLD!!!!!

Don't ever feel guilty about not paying tax because you are in the 15% bracket, unless you start lobbying for higher tax rates for others.
I think you need to check your facts and are also being a bit harsh.

Buffett has disclosed in a Forbes article that he paid 19% of his income in taxes in 2006 and disclosed a 17.7% effective tax rate more recently (2011 I think) so your assertion that he pays zero is factually incorrect.

It would be true that much of his wealth are unrealized capital gains and would not be taxed until such gains are realized (the same as it is for us less affluent folk).

If he gives his money to charity and never personally benefits from his extreme wealth what is the matter with the fact that he didn't pay tax on it? Besides, I'm guessing that his charitable deductions will do more good than if some of it went to the federal government and was then wasted on some pork barrel projects.

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I wasn't aware that we are taxed on our net worth, thanks for clarifying that.
I assume he is talking about estate taxes, but ol Warren will avoid those by giving his money away.
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Old 01-03-2013, 11:04 AM   #29
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Talk about feeling like you are cheating the system. Ole Warren pays 0% tax on his $40billion BECAUSE HE NEVER SELLS anything. Well, at least Warren will pay his fair share to our Federal Tax system when he dies. Oh wait, he is going to take advantage of the unlimited Charitable deduction, and never pay ANY SHARE, let alone his "fair share". Warren $40,000,000,000, US Tax system $0. But he can give advice about how much other people should pay in Federal Taxes. And people give credence to his advice. Warren Buffet, THE BIGGEST HYPOCRITE IN THE WORLD!!!!!

Don't ever feel guilty about not paying tax because you are in the 15% bracket, unless you start lobbying for higher tax rates for others.
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I think you need to check your facts and are also being a bit harsh.

If he gives his money to charity and never personally benefits from his extreme wealth what is the matter with the fact that he didn't pay tax on it? Besides, I'm guessing that his charitable deductions will do more good than if some of it went to the federal government and [some] was then wasted on some pork barrel projects.
+1, you indeed need to check your facts gcgang.

Warren's money is and will probably do more good in the form of charitable contributions than it would as taxes. What most charities do, would fall to government to do less efficiently more often than not (there's a role for both).

We need tax reform in the US, individual & corporate. There are more inequities and unintended consequences due to loopholes and deductions than rates - by a mile! While there are some corporations legally paying no taxes, there are others paying 35% plus/minus year after year, though many people want to paint all corporations with the former 'no taxes' brush. They're all public corporations so you can readily see what they pay in taxes in their annual reports - it's easy.

I can't think of many people more out front about the need for tax reform than Warren Buffett. Can you gcgang?
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Old 01-03-2013, 11:09 AM   #30
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Some people here, haven't had to pay federal income taxes in more than 23 years.
Avoiding taxes is your responsibility.

Evading taxes is a crime.

When you tell most people your stories, they tend to think it's all the same thing.
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Old 01-03-2013, 12:13 PM   #31
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Avoiding taxes is your responsibility.

Evading taxes is a crime.

When you tell most people your stories, they tend to think it's all the same thing.
While I agree, I would say avoiding taxes is a right rather than a responsibility, but that is a bit nit picky on my part. One of my favorite quotes with respect to taxes is from Judge Learned Hand:

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Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury. There is not even a patriotic duty to increase one's taxes. Over and over again the Courts have said that there is nothing sinister in so arranging affairs as to keep taxes as low as possible. Everyone does it, rich and poor alike and all do right, for nobody owes any public duty to pay more than the law demands.
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Old 01-03-2013, 12:54 PM   #32
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Actually, I'm surprised that anyone is paying income taxes. The ol' 47% is now the new 94%. The money that was tax-free going in is also tax-free coming out.

Here's a good illustration from the TheFinanceBuff:
Fiscal Cliff Deal and Dividends and Capital Gains
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Old 01-03-2013, 03:25 PM   #33
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............
I assume he is talking about estate taxes, but ol Warren will avoid those by giving his money away.
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Old 01-03-2013, 05:40 PM   #34
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Actually, I'm surprised that anyone is paying income taxes. The ol' 47% is now the new 94%. The money that was tax-free going in is also tax-free coming out.

Here's a good illustration from the TheFinanceBuff:
Fiscal Cliff Deal and Dividends and Capital Gains
Thanks very much for that excellent link:
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The new law is very generous to wealthy retirees, especially early retirees. When you manage your income to stay under the top of the 15% bracket (close to six figures for married filing jointly after you include exemptions and deductions), you can harvest capital gains every year. Eventually all your qualified dividends and long-term capital gains will be tax free!
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Old 01-03-2013, 05:53 PM   #35
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The new law is very generous to wealthy retirees, especially early retirees. When you manage your income to stay under the top of the 15% bracket (close to six figures for married filing jointly after you include exemptions and deductions), you can harvest capital gains every year. Eventually all your qualified dividends and long-term capital gains will be tax free!
What changed in the new law? This has been true for some time, right?

Except I don't get the claim that "all" will be tax free. Only that you can keep under the top of the 15% bracket, right?

There's another trick that many of us know, which is to do a partial Roth conversion up to the top of that 15% bracket (including divs and cap gains, less deductions and exemptions). You'll owe some tax (10% up to 15%) on the conversion, but none on divs/CGs, but it's very likely to be a winner in the long run.
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Old 01-03-2013, 05:53 PM   #36
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I assume he is talking about estate taxes, but ol Warren will avoid those by giving his money away.
Well, technically, he will avoid them by being dead. His estate will not pay because he gave his shares away, to a charitable cause.
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Old 01-03-2013, 06:38 PM   #37
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What changed in the new law? This has been true for some time, right?

Except I don't get the claim that "all" will be tax free. Only that you can keep under the top of the 15% bracket, right?

There's another trick that many of us know, which is to do a partial Roth conversion up to the top of that 15% bracket (including divs and cap gains, less deductions and exemptions). You'll owe some tax (10% up to 15%) on the conversion, but none on divs/CGs, but it's very likely to be a winner in the long run.
If those gains and divvies are in a Roth IRA where withdrawals are tax free - you get the "all" will be tax free part. This scenario assumes that you can convert all your traditional IRAs and 401Ks so that most of your investment income will ultimately be tax free.
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Old 01-03-2013, 06:52 PM   #38
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If those gains and divvies are in a Roth IRA where withdrawals are tax free - you get the "all" will be tax free part. This scenario assumes that you can convert all your traditional IRAs and 401Ks so that most of your investment income will ultimately be tax free.
Nowhere does the article even mention Roth conversions. The author doesn't make any hints about assumptions so I don't know what the scenario is here. If you have millions in unrealized capital gains, I don't see how you'll fit them all in under the 15% line unless you live to be 200, so I object to the unqualified "all will be tax-free" claim.

And again, I fail to see what "the new law" changes that the 2012 tax code didn't allow in this respect.

There's nothing really wrong in the article, other than not listing the assumptions and making it sound like this is a change, at least as far as I have read about the 2013 tax changes.

If I'm missing an actual tax law change to what I'd call middle income early retirees, I'd like to be pointed to it.
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Old 01-03-2013, 07:05 PM   #39
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Nowhere does the article even mention Roth conversions. The author doesn't make any hints about assumptions so I don't know what the scenario is here. If you have millions in unrealized capital gains, I don't see how you'll fit them all in under the 15% line unless you live to be 200, so I object to the unqualified "all will be tax-free" claim.

And again, I fail to see what "the new law" changes that the 2012 tax code didn't allow in this respect.

There's nothing really wrong in the article, other than not listing the assumptions and making it sound like this is a change, at least as far as I have read about the 2013 tax changes.

If I'm missing an actual tax law change to what I'd call middle income early retirees, I'd like to be pointed to it.
Sorry, I read that in someone else's comment and got them crossed. I thought that was what he was referring to.

Maybe he is advocating tax gain harvesting every year to keep upping the retirement fund basis so you never have enough gains in any year to make them taxable. Maybe he thinks that is what he can do.

It is a new law that makes it permanent. The old one was temporary and expired after 2012.
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Old 01-03-2013, 07:19 PM   #40
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Sorry, I read that in someone else's comment and got them crossed. I thought that was what he was referring to.

Maybe he is advocating tax gain harvesting every year to keep upping the retirement fund basis so you never have enough gains in any year to make them taxable. Maybe he thinks that is what he can do.
Oh, I agree he is, it's just that not everyone will be able to get them all for free. As a single filer, dividends alone push me fairly close to the top of the 15% bracket, even after deductions. I don't have much in unrealized cap gains now, but I do have a good sized IRA I would like to get fully converted to Roth, and I don't think I'll make it. I really was trying to figure out if there was a change that made this more possible, and haven't found one. Except for ...

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It is a new law that makes it permanent. The old one was temporary and expired after 2012.
That's a good point, and while it doesn't change the strategy I had for 2012, it is good to know that I can do the same for the foreseeable future. Yes, it is a good deal for early retirees especially. Thanks.
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