Deleted
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Post by Deleted on Sept 30, 2015 12:28:46 GMT -5
Anyone here care to share your experiences with it?
I made the call to sell all of my Vanguard Total World in my taxable account yesterday to take advantage of a $4200 overall loss in the position (3,000 I can reduce from my income this year, 1200 next year). I exchanged it for Vanguard Total US and Vanguard Total International which avoids the wash sale rule (I don't have any issues in other accounts because the TSP options for my wife are not "substantially identical" nor the offerings in my 401k since that is all in the S&P 500 fund)
On another note, I also wanted to pull 10k out because my credit union offers 5% interest on up to 20k and wanted to max that guaranteed rate. Vanguard totally screwed up that part of the trade and exchanged everything to the funds mentioned above and when I called them on it today they told me to pound sand, makes me question my choice to move to them from Fidelity because I never had any issues there with more complicated trades.
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Post by Deleted on Sept 30, 2015 13:40:04 GMT -5
@aj
First off; the information provided here under is provided for informational purposes and is not intended as, nor should be construed as Tax Advice, Professional Advice, or Legal Advice. It is based on personal experience; under the Preparation and Guidance of a Qualified Licensed Certified Public Accountant.
I know the "rule" to which you are referring. I can give you a real world experience to frame the reality of it.
In 2008; I had income from my investing activities of $15,000; but losses of (-$90,000). And I had the same question; however thankfully I use a CPA and he explained how the deal goes.
2008 Income | $15,000 | 2008 Losses | (-$90,000) | Taxable Income 2008 | $0.00 | Carry Over Losses For Future Years | (-75,000) |
Since My losses exceeded my income, My income was cancelled out. From that point in each subsequent year that I had Taxable Income (end result of Gains - Losses throughout the year) apportion of My carry over losses were applied as a credit to the Taxable Income I had; up to the amount of Taxable Income.
Basically, In say your case; you have $5,000 in income this year and you just took this loss of $4,200: Your 1099 (if only one brokerage) would show Taxable income of $800 for Federal and State Tax purposes. If though lets say you only have $4,000 in income and took this loss of $4,200; then you would have Taxable Income of $0.00 for Federal and State Tax Purposes. At this point, then you would have carry over losses of $200; which could be applied to the next year's income for Federal Purposes: the rub is that, State Tax Systems do not allow you to "carry" over prior years losses as a deduction against current year income. ----------------------------------------------------------------------------------
HERE IS THE ADVICE I WOULD OFFER YOU BASED ON YOU INQUIRY:
I would highly suggest that you contact a qualified, certified CPA about preparing at least this years taxes, due to the fact that it appears that you changed brokerages and due to the confusion over the Carry Over Rules. Yes it is an expense, (generally $500 to $1,000 for simple returns, depending on whom the CPA is), however: {1} CPA's in general will stand behind you in an Audit. {2} CPA's will generally be willing to stand behind the work done if an error is found. {3} CPA's generally carry specific insurance for just the sort of things described in #1 & #2. {4} You will have peace of mind, knowing that your return is done properly, well within the boundaries of the very complicated Tax Code.
Face it no one likes an extra expense, however when that expense is for a service that will prevent you from running afoul (even accidentally) of the IRS and to back you if an error is found; it is more than worth it. You really don't want to run afoul of anyone that you owe money to, or in which their are tricky legal issues; but of all of those the last one you ever want to run afoul of is the IRS.
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Post by Deleted on Sept 30, 2015 14:00:48 GMT -5
Thanks DI, I definitely appreciate the insight. I consolidated everything to Vanguard last year so no issues with a brokerage change on this years tax loss harvest (just venting on Vanguards mistake, I won't leave them anytime soon). There won't be any capital gains so the most I understand I can reduce against normal income is 3k/year with the remainder carried over.
This will be my only mutual fund sale this year and besides that our tax return is incredibly simple with two W2 incomes, standard deduction, dividends and interest received. I also have my friends sister who is a CPA that prepares tax returns and will give me some quick advice for a case of beer, not quite the insurance guarantee you mention but I can't justify spending money on the CPA, the cost would cancel the benefit of the tax loss harvest, especially when the rest of the return is so simple.
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Bluerobin
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Post by Bluerobin on Sept 30, 2015 14:04:11 GMT -5
DI is right about the accountant. I would rather pay him than the IRS. Thanks to my accountant, I have paid minimal taxes since retiring.
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Ombud
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Post by Ombud on Sept 30, 2015 14:46:44 GMT -5
@aj, can I ask why you are afraid of incurring a wash sale? It's not that big of a deal
The bigger issue, as I see it, is the response you got when alerting them to the trade error. I have a 2 strikes and you're out philosophy. That's strike 1
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Post by Deleted on Sept 30, 2015 15:18:17 GMT -5
@aj, can I ask why you are afraid of incurring a wash sale? It's not that big of a deal The bigger issue, as I see it, is the response you got when alerting them to the trade error. I have a 2 strikes and you're out philosophy. That's strike 1 Shaving off 3k of income will mean roughly $990 of federal savings in the 33% bracket for the year, I think it is worth it for minimal hassle. Agree with the two strikes rule, Fidelity had no issues processing complicated transactions and Vanguard totally messed one up that was slightly harder than a basic trade. I wasn't even looking for them to reverse the trades because the financial impact was very small but rather to just say they would review it with the rep that gave the faulty information, they wouldn't even do that and were pretty arrogant about it.
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Post by Deleted on Sept 30, 2015 15:22:58 GMT -5
DI is right about the accountant. I would rather pay him than the IRS. Thanks to my accountant, I have paid minimal taxes since retiring. I agree if you have even a remotely complicated tax situation but mine is incredibly simple without any grey area. With no debt and two W2's we are nowhere near getting away from taking the standard deduction. Once I get closer to retirement in 20 years and have to form a withdrawal strategy I absolutely will have an accountant.
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Ombud
Junior Associate
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Post by Ombud on Sept 30, 2015 16:39:46 GMT -5
@aj, if you aren't doing options, complicated flips, or a business, then it sounds like you're fine but it'll take your time. Price that out ~~~
I typically have more than a few wash sales. No biggie. Schwab adjusts basis for me (currently doing 200+ trades a year). I enter a subtotal for each kind (short covered, short non covered, long covered, long non covered) and send a copy of the 1099 with the cover form. Never an issue
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Ombud
Junior Associate
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Post by Ombud on Oct 1, 2015 10:59:48 GMT -5
DI is right about the accountant. I would rather pay him than the IRS. Thanks to my accountant, I have paid minimal taxes since retiring. @di does options which became complicated tax wise in 2014. Something a tax store (HR BLOCK, Liberty, Jackson Hewitt) and software may not be able to do properly. Additionally 2 of those at least (HR BLOCK & Liberty) charge almost as much as a CPA
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Post by Deleted on Oct 1, 2015 15:17:16 GMT -5
DI is right about the accountant. I would rather pay him than the IRS. Thanks to my accountant, I have paid minimal taxes since retiring. @di does options which became complicated tax wise in 2014. Something a tax store (HR BLOCK, Liberty, Jackson Hewitt) and software may not be able to do properly. Additionally 2 of those at least (HR BLOCK & Liberty) charge almost as much as a CPA Given that this (Investing/Trading) is all I do; if I wasn't doing Options, I would most likely being bounce trading, or swap hop scotch trading in equities (what I originally did).
Even if I wasn't doing any of that, I am one of "those" people; I really hate (above all else that irks my curmudgeonly arse) wondering if I missed something, somewhere. When that happens, I really tend to go into freakazoid mode, and will (have) spend hours, if not days going through every single action I have done prior to when I think, I might have missed something, somewhere. Even then if all seems right, I will still often wonder and that worries me.
Part of the formula that makes up a good trader or investor is knowing what limits you or is a hindrance. For me it is the fact that I am a hyper detailed individual, which is great in a lot of respects; however it is a major drawback in that no one can know or remember everything, every time.
So I pay for peace of mind, and a bit of sanity each year. And hey, my CPA is great; he understands how I am and is always willing to look in corners I might think are of importance, even if they aren't in my case. It works out great; I keep him on his toes and he keeps me perfectly legal. Can't ask for much more than that.
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