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Old 03-28-2012, 10:18 AM   #41
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This is much more debatable, as many of us keep our taxable accounts with the intention of living from the income, not by selling shares. And in particular, not by liquidating the capital. So you judge will my sustainable after tax income support my lifestyle?- not what your withdrawal rate appears to be, given the explicit or assumed gradual drawdown of a portfolio. I will accept market fluctuations, but I would never accept my income falling behind my expenditures.
Also we should judge whether there will be any portfolio turnover, ever. Capital gains taxes are not just owed if you liquidate principal, but also if you reallocate principal. Is it reasonable to assume deferred taxes on unrealized capital gains will never be paid? Maybe. For individual stock holdings it is possible. For mutual funds, probably not. But in either event, holding on to investments you'd otherwise sell to avoid capital gains taxes is another way "tax phobia can keep us from making good decisions."
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Old 03-28-2012, 10:24 AM   #42
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I would htink you can either budget with pre-tax income and consider taxes an expense or simply deduct the amount of taxes you pay and budget with after-tax income. It all comes out the same in the end, it's more a matter of personal preference in terms of your own budgeting and accounting. Personally I'd prefer to use pre-tax income for budgeting and treat taxes as an expense.
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Old 03-28-2012, 10:25 AM   #43
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Also we should judge whether there will be any portfolio turnover, ever. Capital gains taxes are not just owed if you liquidate principal, but also if you reallocate principal. Is it reasonable to assume deferred taxes on unrealized capital gains will never be paid?

Holding on to investments you'd otherwise sell to avoid capital gains taxes is another way "tax phobia can keep us from making good decisions."
You have a good point, and that is why I changed my post. I could envision this turning in to a never ending spiral which in general I prefer to leave to others.

It is impossible to make this into adequate generalizations. However, I will say that I own Exxon that derives from oil company stock owned by my great grandfather, and until 25 years or so ago I owned RJR from the same era. I currently own some issues that I bought in 1986. Usually, my taxable portfolio is ~1/2 capital gains, and I have no unrealized losses or loss carryovers. I do have a current 3% loss postion in a natural gas stock. I pay more income tax than most of the retirees in my modest income class who post here about taxes. I believe that is because I tend to make money in my portfolio. It can be done. In general I have traded my account too much. Often there is no need. When there is, you pay the tax. I consider it but do not get hung up on it. This may be changing in the future. America is a bare shadow of what it once was.

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Old 03-28-2012, 10:31 AM   #44
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I could envision this turning in to a never ending spiral which in general I prefer to leave to others.
True, but intelligent discussions are worth having. I know in my case this has forced me to think through something I hadn't previously considered in detail.
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Old 04-02-2012, 12:03 PM   #45
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I am a tax accountant by profession (corporate), so I do track my deferred taxes on my net worth calculation, and would factor them into a SWR when I reach that day. In fact I do so, net inflation in my projections.

I use 30% as a blended fed/state rate. It might be a little high if I FIRE and get to do strategic conversions, but I am about 10 years away at the earliest and a lot could change there.
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