Tax and Other Planning for High 2014 Earnings

[Shawn]

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Originally Posted by CoolChange It sounds like Fidelity Charitable is in my future; this is likely the year it will make sense.

I have a Donor Advised Fund (DAF) at Fidelity Charitable too. While it is a tad - and only a tad - more expensive than the Vanguard equivalent, Fidelity Charitable is more flexible in terms of its lower dollar requirements for fund contributions and charitable grants (just as 2B says).

I opened my account at Fidelity in 2011. With it I can "pre-fund" future charitable contributions but get the tax deduction now during my last few years of work when my income is higher. This is particularly useful since I am subject to AMT. I get a 42% tax deduction today (federal AMT plus state) instead of the lower expected tax deduction when I am retired (potentially as low as 0% if I no longer itemize).

And it gets better. It is fairly easy to contribute shares of stocks or mutual funds that have unrealized capital gains. This allows one to get the higher charitable deduction and avoid taxes on capital gains. Double win. Of course, one does not need a DAF to donate appreciated shares. But the DAF makes the process easier, since it is streamlined to do this. My recent contributions to Fidelity Charitable have been with appreciated Vanguard mutual fund shares. The process has taken only about a week to complete, probably because the two biggest fund companies are involved. The only real difficulty is the need to get a "Medallion Signature Guarantee" (I have obtained mine at a local Fidelity office, which then mails in my contribution forms for me).

I am very satisfied with the DAF concept. The investment options at Fidelity Charitable, while not extensive, are quite satisfactory (e.g., low-cost index funds are available). I have yet to make actual charitable grants using my DAF account (still writing/mailing checks from my credit union), but the process appears to be very user friendly. It could be a useful method to make charitable contributions even without the tax advantages.

[LOL!]

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Originally Posted by CoolChange On the purely financial side: Are there any considerations with locking in short-term capital losses by swapping sector ETF's after a large correction? My brief research on this makes me think that these losses can be used in much the same way as long-term losses, including carrying them forward for use in future years. But, I rarely hear anyone discuss locking in short-term capital losses; the discussion always seems to focus on harvesting the long-term losses. Again, just trying to avoid anything obvious.

One should always realize losses before they go long-term, so I don't know where you got the idea that folks concentrate on long-term losses. Indeed, if one realizes losses that are short-term, one should almost never have any long-term losses to realize (in a taxable account).

I always look at any position that was bought 11.5 months ago. Also I look in November and December to see if I need to sell losers for tax-loss harvesting purposes. I will buy replacement shares in something not substantially identical.

The benefits are 2-fold:
1. One avoids the loss aversion trap and emotions and sentimentality.
2. One starts every year with all positions in the black and none in the red.

So once again: book the losses before they go long-term.

[Dash man]

If you haven't already, you'll want to consult with an estate planning attorney to set up a living trust and identify what beneficiaries you want should something happen to you. The last thing you want is for the state to decide where your money would go.

[CoolChange]

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Originally Posted by LOL! One should always realize losses before they go long-term, so I don't know where you got the idea that folks concentrate on long-term losses. Indeed, if one realizes losses that are short-term, one should almost never have any long-term losses to realize (in a taxable account). I always look at any position that was bought 11.5 months ago. Also I look in November and December to see if I need to sell losers for tax-loss harvesting purposes. I will buy replacement shares in something not substantially identical. The benefits are 2-fold: 1. One avoids the loss aversion trap and emotions and sentimentality. 2. One starts every year with all positions in the black and none in the red. So once again: book the losses before they go long-term.

This is what my limited research seemed to indicate as well. But, most of what I was finding was only discussing long term gains and losses. I just had not read much to support my growing inclination that I would be better off harvesting my losses ASAP.

This is the kind of thing I was seeking when I started this thread: I have no doubt paid much more in taxes than I needed to had I followed this simple practice. But, for some reason, I had thought that use of long term losses was more restricted; I have no idea where I originally got that idea.

Now, I know more. Thank you.

Quote:

Originally Posted by Dash man If you haven't already, you'll want to consult with an estate planning attorney to set up a living trust and identify what beneficiaries you want should something happen to you. The last thing you want is for the state to decide where your money would go.

This is an area of my life that I definitely need to revisit. Thanks for the reminder.