Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Minimizing long term capital gains
Old 12-28-2011, 10:35 PM   #1
Recycles dryer sheets
 
Join Date: Apr 2010
Posts: 412
Minimizing long term capital gains

I am expecting a windfall from one of start-ups I worked for in amount of ~250-300K.

I exercised my stock options about 6 years ago, so almost all of this amount will be long term capital gains.

Any advice how I could minimize taxes?

Thanks!
__________________

__________________
“The problem with the world is that the intelligent people are full of doubt, while the stupid people are full of confidence.”

(—Charles Bukowski)
wanaberetiree is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-28-2011, 10:38 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 2,357
If you have charities in mind, then a Charitable Remainder Trust or similar might fit.
__________________

__________________
GrayHare is online now   Reply With Quote
Old 12-28-2011, 11:14 PM   #3
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,401
If there's any way you can split the receipt into this year and next year, that would probably help because you'd probably be able to be taxed at a lower marginal bracket.

2Cor521
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 12-28-2011, 11:32 PM   #4
Thinks s/he gets paid by the post
 
Join Date: Mar 2010
Location: Kerrville,Tx
Posts: 2,709
Quote:
Originally Posted by SecondCor521 View Post
If there's any way you can split the receipt into this year and next year, that would probably help because you'd probably be able to be taxed at a lower marginal bracket.

2Cor521
Since its a long term capital gain it will be taxed at 15% this year (2012) it is anyones guess what the rate for 2013 will be.
__________________
meierlde is offline   Reply With Quote
Old 12-28-2011, 11:55 PM   #5
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 2,401
@meierlde, you're right. I was thinking ordinary income. Duh.

2Cor521
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is online now   Reply With Quote
Old 12-29-2011, 06:22 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,456
Actually, if your ordinary income is under $69,000 (married, filing jointly) you get a break on the tax on long-term cap gains up to that amount.

Be glad it's long-term capital gains. It's currently at a historical low level tax rate. Who knows what will happen in 2013, but you are OK for 2012.

Be aware that a capital gain of that amount is usually enough to trigger AMT, so you might be paying a bit more in taxes this way. It depends on your tax bracket.

You might want to get a tax professional to help you figure this out.

Audrey
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 12-29-2011, 06:51 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,407
I would pay the 15% and be thankful it is only 15%. If you have an taxable investment portfolio with unrealized losses, you could sell those positions to realize those losses to offset your capital gains. Just be aware of wash sale rules when reinvesting the proceeds.
__________________
pb4uski is online now   Reply With Quote
Old 12-29-2011, 06:54 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by pb4uski View Post
I would pay the 15% and be thankful it is only 15%. If you have an taxable investment portfolio with unrealized losses, you could sell those positions to realize those losses to offset your capital gains. Just be aware of wash sale rules when reinvesting the proceeds.
+1

That said if there is any way you can spread the sale between this year and next that might save you a bit of money. But in general owing 40K in taxes on 250-300 profit isn't too bad
__________________
clifp is offline   Reply With Quote
Old 12-29-2011, 07:39 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,407
Quote:
Originally Posted by clifp View Post
+1

That said if there is any way you can spread the sale between this year and next that might save you a bit of money. But in general owing 40K in taxes on 250-300 profit isn't too bad
I don't see how spreading the gain between years will save anything as the gain in either year will be the 15% capital gains rate. What am I missing?
__________________
pb4uski is online now   Reply With Quote
Old 12-29-2011, 07:58 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
clifp's Avatar
 
Join Date: Oct 2006
Posts: 7,450
Quote:
Originally Posted by pb4uski View Post
I don't see how spreading the gain between years will save anything as the gain in either year will be the 15% capital gains rate. What am I missing?
It may have no impact, however some deductions are phased out at higher income levels, especially with respect to the alternative minimum tax. It been a long time since I have had to worry about income levels above 200K and I am sure much has changed. It maybe worth firing up turbo tax and seeing if there are any difference.
__________________
clifp is offline   Reply With Quote
Old 12-29-2011, 08:02 AM   #11
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,407
Ah, I see.
__________________
pb4uski is online now   Reply With Quote
Old 12-29-2011, 10:07 AM   #12
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 2,925
Quote:
Originally Posted by pb4uski View Post
I don't see how spreading the gain between years will save anything as the gain in either year will be the 15% capital gains rate. What am I missing?
As Audrey suggested, the CG rate can be either 0 or 15% depending on what other income there is. In the situation where the CG rate was 0% on part of the CG, you would benefit by having 2 yrs worth of 0% rather than 1.
__________________
kaneohe is offline   Reply With Quote
Old 12-29-2011, 12:26 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,407
Quote:
Originally Posted by kaneohe View Post
As Audrey suggested, the CG rate can be either 0 or 15% depending on what other income there is. In the situation where the CG rate was 0% on part of the CG, you would benefit by having 2 yrs worth of 0% rather than 1.
Got it.
__________________
pb4uski is online now   Reply With Quote
Old 12-29-2011, 01:06 PM   #14
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
Watch out for any deduction/exemption/credit phase outs. They can increase your marginal tax rates, even for capital gains! I'm not sure that is an issue this year except for special cases (Roth contribution income limit and tuition credit phase outs would be two considerations). Though I think the more common phase outs return in 2013.

Back when I had this problem I was actually already into the phase out region. by piling all of my capital gains into one year I was able to get past the phase outs and back to a marginal 15% capital gains rate. So it was less tax for me to do it all in one year instead of two or more all within the phase out range.

Some of the phase outs can add 25% I think to your marginal rate, so watch out.
__________________
Animorph is offline   Reply With Quote
Old 12-29-2011, 09:27 PM   #15
Recycles dryer sheets
 
Join Date: Apr 2010
Posts: 412
Thank you all!

Happy New Year!
__________________
“The problem with the world is that the intelligent people are full of doubt, while the stupid people are full of confidence.”

(—Charles Bukowski)
wanaberetiree is offline   Reply With Quote
Old 12-30-2011, 09:22 AM   #16
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,856
Quote:
Originally Posted by audreyh1 View Post
Be aware that a capital gain of that amount is usually enough to trigger AMT, so you might be paying a bit more in taxes this way. It depends on your tax bracket.
When I ERed in 2008, I took a company stock payout of about $300k. I chose the NUA option so nearly all of it was treated as long-term cap gains and taxed at 15%. However, the AMT was triggered and the remainder of my income (which was not very much, thankfully) was subject to extra taxes and those phaseouts of itemized deductions and personal exemption.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is online now   Reply With Quote
Old 12-30-2011, 09:24 AM   #17
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
If you no longer want to hold the position, I'd just sell it all while I know the gain will only be taxed at 15%. That rate can only go up in the future, or at the very least it certainly won't go down. You may need to watch for AMT, though, and if that's the case, sell what you can until you almost hit it.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 12-30-2011, 02:19 PM   #18
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Sep 2005
Location: Northern IL
Posts: 18,261
Quote:
Originally Posted by ziggy29 View Post
If you no longer want to hold the position, I'd just sell it all while I know the gain will only be taxed at 15%. That rate can only go up in the future, or at the very least it certainly won't go down. You may need to watch for AMT, though, and if that's the case, sell what you can until you almost hit it.
I'm not sure, but I wonder if there are cases where it would be best to sell all in one year, because of AMT? If you are going to hit AMT, could it be best to hit it all in one year, so those deductions and other things are limited in only one year, instead of multiple?

I think you'd need to run the numbers in a tax program to be sure, but it seems it could work out either way, depending on many factors.

-ERD50
__________________

__________________
ERD50 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
If you want diversification, wont long term corporate bonds be the ticket Quantum Sufficit FIRE and Money 2 12-05-2011 08:46 PM
Long Term Care Annuity ????? rkser FIRE and Money 86 11-26-2011 08:17 AM
How do I get my GF interested in preparing for her long term financial future? Mulligan FIRE and Money 58 10-26-2011 07:00 AM
Are we are LONG on Short Term thinking? Chuckanut FIRE and Money 5 08-15-2011 01:50 PM

 

 
All times are GMT -6. The time now is 11:05 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.