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Take all my unrealized capital gains this year?
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Confused
May 17, 2012, 5:50:23 PM5/17/12
to
I have no income other than investment income.
In bad years I generally pay no tax.
In good years I fall into AMT and pay horrible taxes because I lose my considerable deductions.
This year will be a good year. (unless the market continues to crash). I used up all my capital loss carryforward last year, and have considerable realized capital gains.
I am thinking that as long as I am deep into AMT, I might as well take all the unrealized capital gains this year. I can't lose my deductions more than once, and doing this will reduce the likelihood of it happening again in future years.
I know I can do a simulation on TaxCut, but I wonder if the idea makes sense.
I also am thinking about converting my trad IRA to a Roth, and it seems opportune to do it all at once and avoid multiple AMTs.
Wouldn't it be nice to have a tax system that didn't make you do dumb things just to minimize your taxes?
--
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<< that may be imposed upon the taxpayer. >>
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<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2011) - All rights reserved. >>
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In bad years I generally pay no tax.
In good years I fall into AMT and pay horrible taxes because I lose my considerable deductions.
This year will be a good year. (unless the market continues to crash). I used up all my capital loss carryforward last year, and have considerable realized capital gains.
I am thinking that as long as I am deep into AMT, I might as well take all the unrealized capital gains this year. I can't lose my deductions more than once, and doing this will reduce the likelihood of it happening again in future years.
I know I can do a simulation on TaxCut, but I wonder if the idea makes sense.
I also am thinking about converting my trad IRA to a Roth, and it seems opportune to do it all at once and avoid multiple AMTs.
Wouldn't it be nice to have a tax system that didn't make you do dumb things just to minimize your taxes?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
removeps-groups
May 17, 2012, 7:40:24 PM5/17/12
to
"Confused" <*@lippman.info> wrote in message
news:24567553.780.1337285053406.JavaMail.geo-discussion-forums@vbww2...
> I have no income other than investment income.
> In bad years I generally pay no tax.
> In good years I fall into AMT and pay horrible taxes because I lose my
> considerable deductions.
Is most of your investment income short term capital gains? Long term
capital gains are not subject to AMT, although they lower your AMT exemption
and thus expose more of your regular income to AMT. So a good strategy is
to hold stocks for over one year.
> This year will be a good year. (unless the market continues to crash). I
> used up all my capital loss carryforward last year, and have considerable
> realized capital gains.
You might be in AMT if you made payments not allowed under AMT, such as
property tax payments, estimated state income tax payments. If you can
defer these payments, noting that there will be penalties for paying for
property and state income taxes late (and you risk the state taking
possession of your home if you are late with property taxes), this might
avoid AMT. But then pay the tax next year. But this only makes sense if
next year your income is less such that you are not in AMT, but no so much
less that the deduction is meaningless.
> I am thinking that as long as I am deep into AMT, I might as well take all
> the unrealized capital gains this year.
You can't take an unrealized capital gain, unless you have some
marked-to-market election in effect. You have to realize it, take the
profit, pay tax, and then buy back the shares if you want to. Wash sale
rule does not apply as you are selling at a profit.
> I know I can do a simulation on TaxCut, but I wonder if the idea makes
> sense.
> I also am thinking about converting my trad IRA to a Roth, and it seems
> opportune to do it all at once and avoid multiple AMTs.
It would be best to do the conversion in a bad year where you typically pay
no tax.
> Wouldn't it be nice to have a tax system that didn't make you do dumb
> things just to minimize your taxes?
Yes.
news:24567553.780.1337285053406.JavaMail.geo-discussion-forums@vbww2...
> I have no income other than investment income.
> In bad years I generally pay no tax.
> In good years I fall into AMT and pay horrible taxes because I lose my
> considerable deductions.
capital gains are not subject to AMT, although they lower your AMT exemption
and thus expose more of your regular income to AMT. So a good strategy is
to hold stocks for over one year.
> This year will be a good year. (unless the market continues to crash). I
> used up all my capital loss carryforward last year, and have considerable
> realized capital gains.
property tax payments, estimated state income tax payments. If you can
defer these payments, noting that there will be penalties for paying for
property and state income taxes late (and you risk the state taking
possession of your home if you are late with property taxes), this might
avoid AMT. But then pay the tax next year. But this only makes sense if
next year your income is less such that you are not in AMT, but no so much
less that the deduction is meaningless.
> I am thinking that as long as I am deep into AMT, I might as well take all
> the unrealized capital gains this year.
marked-to-market election in effect. You have to realize it, take the
profit, pay tax, and then buy back the shares if you want to. Wash sale
rule does not apply as you are selling at a profit.
> I know I can do a simulation on TaxCut, but I wonder if the idea makes
> sense.
> I also am thinking about converting my trad IRA to a Roth, and it seems
> opportune to do it all at once and avoid multiple AMTs.
no tax.
> Wouldn't it be nice to have a tax system that didn't make you do dumb
> things just to minimize your taxes?
JoeTaxpayer
May 17, 2012, 8:22:44 PM5/17/12
to
On 5/17/12 5:50 PM, Confused wrote:
> I know I can do a simulation on TaxCut, but I wonder if the idea makes sense.
> I also am thinking about converting my trad IRA to a Roth, and it seems opportune to do it all at once and avoid multiple AMTs.
Yes. Do it. But. I suggest you convert to as many Roth accounts as you
> I know I can do a simulation on TaxCut, but I wonder if the idea makes sense.
> I also am thinking about converting my trad IRA to a Roth, and it seems opportune to do it all at once and avoid multiple AMTs.
have patience to fill out paperwork for. Convert by asset type or even
individual stock. This will give you the option to recharacterize in
hindsight which of course is 20/20. You start by recharacterizing stuff
that went down in value. Then see where you fall bracket-wise. You see,
even if you're in AMT land and paying 40% (or whatever phantom rate
kicks in) you may have Roth accounts that were up 100% over that time,
and worth leaving converted. So long as you are willing to pay
attention, convert and recharacterize, there's little risk in converting
now.
Confused
May 18, 2012, 10:49:05 AM5/18/12
to
On Thursday, May 17, 2012 7:40:24 PM UTC-4, removep...@yahoo.com wrote:
> You might be in AMT if you made payments not allowed under AMT, such as
> property tax payments, estimated state income tax payments. If you can
> defer these payments, noting that there will be penalties for paying for
> property and state income taxes late (and you risk the state taking
> possession of your home if you are late with property taxes), this might
> avoid AMT. But then pay the tax next year. But this only makes sense if
> next year your income is less such that you are not in AMT, but no so much
> less that the deduction is meaningless.
Most of the deductions are for medical and investment management fees; some real estate tax.
> You might be in AMT if you made payments not allowed under AMT, such as
> property tax payments, estimated state income tax payments. If you can
> defer these payments, noting that there will be penalties for paying for
> property and state income taxes late (and you risk the state taking
> possession of your home if you are late with property taxes), this might
> avoid AMT. But then pay the tax next year. But this only makes sense if
> next year your income is less such that you are not in AMT, but no so much
> less that the deduction is meaningless.
>
> > I am thinking that as long as I am deep into AMT, I might as well take all
> > the unrealized capital gains this year.
>
> You can't take an unrealized capital gain, unless you have some
> marked-to-market election in effect. You have to realize it, take the
> profit, pay tax, and then buy back the shares if you want to. Wash sale
> rule does not apply as you are selling at a profit.
I phrased that poorly. I meant to say I could realize the gain.
> > I am thinking that as long as I am deep into AMT, I might as well take all
> > the unrealized capital gains this year.
>
> You can't take an unrealized capital gain, unless you have some
> marked-to-market election in effect. You have to realize it, take the
> profit, pay tax, and then buy back the shares if you want to. Wash sale
> rule does not apply as you are selling at a profit.
>
> > I know I can do a simulation on TaxCut, but I wonder if the idea makes
> > sense.
> > I also am thinking about converting my trad IRA to a Roth, and it seems
> > opportune to do it all at once and avoid multiple AMTs.
>
> It would be best to do the conversion in a bad year where you typically pay
> no tax.
>
I owed no tax the last two years until I converted the IRA and paid an absurd tax rate because of AMT. I had to recharacterize most of the conversion.
> > I know I can do a simulation on TaxCut, but I wonder if the idea makes
> > sense.
> > I also am thinking about converting my trad IRA to a Roth, and it seems
> > opportune to do it all at once and avoid multiple AMTs.
>
> It would be best to do the conversion in a bad year where you typically pay
> no tax.
>
I know I will be paying 40% on the conversion, but that is better than the 60% I would have paid last year if I didn't recharacterize.
Confused
May 18, 2012, 9:31:39 PM5/18/12
to
On Thursday, May 17, 2012 5:50:23 PM UTC-4, Confused wrote:
> I have no income other than investment income.
> In bad years I generally pay no tax.
> In good years I fall into AMT and pay horrible taxes because I lose my considerable deductions.
>
> This year will be a good year. (unless the market continues to crash). I used up all my capital loss carryforward last year, and have considerable realized capital gains.
>
> I am thinking that as long as I am deep into AMT, I might as well take all the unrealized capital gains this year. I can't lose my deductions more than once, and doing this will reduce the likelihood of it happening again in future years.
>
> I know I can do a simulation on TaxCut, but I wonder if the idea makes sense.
> I also am thinking about converting my trad IRA to a Roth, and it seems opportune to do it all at once and avoid multiple AMTs.
>
> Wouldn't it be nice to have a tax system that didn't make you do dumb things just to minimize your taxes?
> I have no income other than investment income.
> In bad years I generally pay no tax.
> In good years I fall into AMT and pay horrible taxes because I lose my considerable deductions.
>
> This year will be a good year. (unless the market continues to crash). I used up all my capital loss carryforward last year, and have considerable realized capital gains.
>
> I am thinking that as long as I am deep into AMT, I might as well take all the unrealized capital gains this year. I can't lose my deductions more than once, and doing this will reduce the likelihood of it happening again in future years.
>
> I know I can do a simulation on TaxCut, but I wonder if the idea makes sense.
> I also am thinking about converting my trad IRA to a Roth, and it seems opportune to do it all at once and avoid multiple AMTs.
>
> Wouldn't it be nice to have a tax system that didn't make you do dumb things just to minimize your taxes?
On Thursday, May 17, 2012 5:50:23 PM UTC-4, Confused wrote:
> I have no income other than investment income.
> In bad years I generally pay no tax.
> In good years I fall into AMT and pay horrible taxes because I lose my considerable deductions.
>
> This year will be a good year. (unless the market continues to crash). I used up all my capital loss carryforward last year, and have considerable realized capital gains.
>
> I am thinking that as long as I am deep into AMT, I might as well take all the unrealized capital gains this year. I can't lose my deductions more than once, and doing this will reduce the likelihood of it happening again in future years.
>
> I know I can do a simulation on TaxCut, but I wonder if the idea makes sense.
> I also am thinking about converting my trad IRA to a Roth, and it seems opportune to do it all at once and avoid multiple AMTs.
>
I added 5 levels of capital gains from $0 to $400,000 and 5 levels of recharacterization from 0% to 100% to my 2011 tax return to see what would happen; 25 different scenarios.
> I have no income other than investment income.
> In bad years I generally pay no tax.
> In good years I fall into AMT and pay horrible taxes because I lose my considerable deductions.
>
> This year will be a good year. (unless the market continues to crash). I used up all my capital loss carryforward last year, and have considerable realized capital gains.
>
> I am thinking that as long as I am deep into AMT, I might as well take all the unrealized capital gains this year. I can't lose my deductions more than once, and doing this will reduce the likelihood of it happening again in future years.
>
> I know I can do a simulation on TaxCut, but I wonder if the idea makes sense.
> I also am thinking about converting my trad IRA to a Roth, and it seems opportune to do it all at once and avoid multiple AMTs.
>
The results were surprising.
50% recharacterization seemed optimal; any more gave a horrible tax rate.
The amount of long term capital gains didn't matter; it was all taxed at 30% Federal and NY. Since 30% is high and didn't help the IRA at all, it seems prudent to minimize the capital gains.
Too bad, I wanted to get this IRA stuff over with, but it is just too expensive to do it all this year.
It is not what I expected. Maybe I will go back and see how taxes and AMT move around; but it probably doesn't matter much.
Rich Carreiro
May 19, 2012, 3:10:41 PM5/19/12
to
"removeps-groups" <removep...@yahoo.com> writes:
> Is most of your investment income short term capital gains? Long term
> capital gains are not subject to AMT, although they lower your AMT exemption
> and thus expose more of your regular income to AMT. So a good strategy is
> to hold stocks for over one year.
To quantify that, $100 of LTCG will lower your AMT exemption by $25,
> Is most of your investment income short term capital gains? Long term
> capital gains are not subject to AMT, although they lower your AMT exemption
> and thus expose more of your regular income to AMT. So a good strategy is
> to hold stocks for over one year.
exposing an additional $25 of other income to the AMT.
So you'll pay $15 tax on the LTCG and will pay 28% on that $25 ($7)
for a total of $22 tax.
So while you're in the AMT exemption phaseout range, the actual
rate on LTCG is 22%, not 15%. Once the exemption is fully phased
out, the rate will drop back to 15%.
--
Rich Carreiro rlc-...@rlcarr.com
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