Big gains. Need help if it’s possible.

[kilowatt]

Semi-retired at 55, am now 60. In the last year or so I managed to “invest” in a stock that allowed my net worth to more than triple. Without being too exact, I was “up” about 4M but the pullback brought that down to about 3M pretty quickly before I sold. None of this is a problem or complaint. I am blessed.
My question if someone can advise, is how to do something to protect from a 37% tax bill on the short term gain of the money in that pot that is NOT from my 401k rollover to brokerage account which isn’t taxable.
The short term gains in my regular taxable brokerage account are right at 2M, meaning a tax bill next year of approx 740K. I never expected to be in the position I am in and am very fortunate. Still, I’d like to keep more of what I gained by putting a lifetime of savings “at risk”. I have no desire to give to Uncle Sam that which I can put to better use than waste, fraud, and abuse by the fed govt. Thanks for any suggestions.

 

[disneysteve]

Congrats on your good fortune.


First idea that comes to mind is charitable giving. I realize 2M is probably way beyond your planned giving but you can shelter at least a portion of it that way either with direct giving or by establishing a donor-advised fund. I'm not fully versed in all of the details but I'd certainly recommend looking into that option. At least it provides a partial solution.

 

[RunningBum]

The only thing I'm aware of is too late for you. Rather than sell, you could have bought put options to lock in the gains until your shares turned to LT status. I've never done it so someone can correct me if I'm wrong. But now that you've sold, you can't reverse that. Maybe you've still got some shares left?

There are some minor things, I guess. Use this year to take whatever deductions you can. Main one I can think of is to start a Donor Advised Fund. This enables you to make a large contribution, perhaps a lifetime's worth, and take the charity deduction this year, but distribute it over time. Ideally you get a further advantage by transferring shares with a gain so that you get a full value deduction without having to pay gains. I recall something about a limit on how much you could take, something like no more than half your taxable income maybe? So check that out if you go this route.

 

[Ian S]

If I understand your situation, your overall short term gain was $3M but some of that was within your 401K and the part that was in your taxable brokerage had a realized short term capital gain of $2M. Having sold the stock, I don't think you can do anything with respect to a charitable donation since that has to be in the form of the actual stock, not the proceeds of a sale. I know of no other way to avoid the hefty capital gains tax and you should be careful that you pay withholding and estimated taxes sufficient to avoid interest and penalties.

 

[disneysteve]

Ah. Ian S is right. You’ve already liquidated the stock and are now sitting on the cash. Charitable giving won’t help you. Darn.

 

[RunningBum]

Wait, charitable giving will help, even if the OP just donates, say $100K of the proceeds to a DAF it will be deducted from the income, so a $37,000 tax break (after whatever difference to get beyond the standard deduction). It would have been a larger benefit to donate the shares pre-sale (if possible), but there is still tax savings to be had.

Not trying to make the OP feel bad, but tax planning really should be done in advance, not afterward.

 

[disneysteve]

Wait, charitable giving will help, even if the OP just donates, say $100K of the proceeds to a DAF it will be deducted from the income, so a $37,000 tax break (after whatever difference to get beyond the standard deduction). It would have been a larger benefit to donate the shares pre-sale (if possible), but there is still tax savings to be had.

That works.

 

[Letj]

The only way I know you can defer the gain is if you invest in an opportunity zone project within 180 days of the sale. Look into what opportunity zones are and how the tax treatment. Of course you have to evaluate the risk of each project.

 

[Ian S]

I dunno, as I understand it, the O.P. can bite the bullet and pay the tax to the gummint leaving him with $1.26M OR donate the whole $2M to the DAF and owe the gummint nothing but have none of the gain for himself. Yeah it's a way to avoid tax but strikes me as cutting off your nose to spite your face unless your whole reason for gambling with your savings was to give all the profits away. Yeah it doesn't have to be all or none and it would be generous to up your charitable giving over what it would be normally but just know that if you want to keep as much as possible for yourself, paying the taxes is the way to go.

 

[RunningBum]

I dunno, as I understand it, the O.P. can bite the bullet and pay the tax to the gummint leaving him with $1.26M OR donate the whole $2M to the DAF and owe the gummint nothing but have none of the gain for himself. Yeah it's a way to avoid tax but strikes me as cutting off your nose to spite your face unless your whole reason for gambling with your savings was to give all the profits away. Yeah it doesn't have to be all or none and it would be generous to up your charitable giving over what it would be normally but just know that if you want to keep as much as possible for yourself, paying the taxes is the way to go.

Of course. I said it was a minor thing, obviously not $2M.

My point is, if they figure they'll donate $10K or $50K or $100K or whatever over the rest of their lifetime, it's better to donate the whole chunk now to a DAF and get the 37% write-off rather than trickle it out over the remaining years and maybe not even exceed the standard deduction.

If you want to totally optimize your wealth, don't donate anything. One could leave some of their estate to charity, so that they have access to it all just in case, and donate it if it was never needed. Or don't even do the estate thing. Up to each individual.