The Stock Market Is Not The Economy Thread II

[archibaldcrane]

If you haven't filed yet and have a relatively simple tax filing and live in one of these states, use the new free IRS directfile tool, burn the tax prep industry to the ground.

https://twitter.com/AshleySchapitl/s...-FkecFOBA&s=19



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[Cantih]

I'm just a W2 this year, so gonna give it a go.
Though I may use one of the other programs that does CA State filing for free for my income level.

[Zealot]

Hooray, taxes, a reminder of how far I've fallen

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[Roranora]

a graph of my AGIs would be a bumpy ride

[archibaldcrane]

Hooray, taxes, a reminder of how far I've fallen

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Tell me about it

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[Zetanio]

a graph of my AGIs would be a bumpy ride

just start harvesting your tax losses with your investments. its definitely not tax evasion.

[Roranora]

just start harvesting your tax losses with your investments. its definitely not tax evasion.

i do see that this is English, but i’m afraid i don’t speak this language

[Zetanio]

its an investment strategy that you invest in a huge basket of individual stocks (like buying individual pieces of the S&P 500) and when one of them tanks, you sell it, book the loss, and then buy similar profile stocks. (you see this a lot with airlines and midstream pipeline companies). you can deduct that loss from your AGI and not pay taxes on your gains because you haven't sold any winners.

it's tax evasion but its totally legal.

[Cantih]

[Byrthnoth]

You can only do that for $3k / year.

[Zetanio]

You can only do that for $3k / year.

yeah its a free 3k tax deduction but you can also sell losers to avoid paying taxes on gains you would like to realize. Here's a good example from Investopedia.

Example of Tax-Loss Harvesting

Assume a single investor earns an income of $580,000 in 2023. The investor's marginal income tax rate is 37% and is subject to the highest long-term capital gains tax category, where gains are taxed at 20%. Short-term capital gains are taxed at the investor's marginal rate.41

Below are the investor's portfolio gains and losses and trading activity for the year:

Portfolio:

Mutual Fund A: $250,000 unrealized gain, held for 450 days
Mutual Fund B: $130,000 unrealized loss, held for 635 days
Mutual Fund C: $100,000 unrealized loss, held for 125 days

Trading Activity:

Mutual Fund E: Sold, realized a gain of $200,000. Fund was held for 380 days
Mutual Fund F: Sold, realized a gain of $150,000. Fund was held for 150 days

The tax owed from these sales is:

Tax without harvesting = ($200,000 x 20%) + ($150,000 x 37%) = $40,000 + $55,500 = $95,500

If the investor harvested losses by selling mutual funds B and C, the sales would help to offset the gains, and the tax owed would be:

Tax with harvesting = (($200,000 - $130,000) x 20%) + (($150,000 - $100,000) x 37%) = $14,000 + $18,500 = $32,500

[Byrthnoth]

Oh yeah, for sure. Churning losers and winners together makes sense. However, if you imagine that you wrapped your investment distribution in a mutual fund and were paying tax on the net gains, it would behave the same way.

I don't see an actual problem with the way this works. If you gained 200k in one stock and lost 200k on another stock, you _should_ be taxed on the $0 you made. It isn't really a tax evasion hack to pay tax on your net capital gains.

[Zetanio]

Yeah, it's one of those things I don't love but it's legal. It's used to shield the wealthy and very wealthy from paying higher tax rates (one of their many ways to do it) quite often and I've had to work on products in that space. Anyway, it's a quirky thing that is getting much more popular these days.

[Buffy]

I've been trying to figure out what I want my personal philosophy to be on capital gains.

I super don't love that a person can have 100m increase in their net worth in the stock market and they aren't taxed on it, and then ten years later when they sell it, they only pay 15% tax.

Should we be trying to pass laws that capital gains are taxed at the same rate as income tax, and that the tax is due in the same tax year? Is anyone aware of any studies or scholarly work on an approach like that? I don't know what the second and third order effects would be. It certainly would have a negative impact on the stock market in the short term I think. Things like retirement vehicles (401k, 401a, etc) would be exempted still I think in this approach.

Loses, as discussed above, should be able to be rolled forward and deducted against.

Even if we did that, it doesn't help with the large amount of wealth tied up in things like property ownership.

[Krandor]

There probably should be some kind of system in place for taxing unrealized gains in the millions (and/or the one Bernie always parrots about taxing 100% of a person's earnings if they're over a billionaire in net worth).

But no chance in hell it could ever actually get implemented since folks in the House/Senate make so much bank on their totally not insider trading.

[Byrthnoth]

Imo capital gains should be considered income and not taxed at a different rate. I would also get rid of the free step up in cost basis for inherited properties (maybe only for non-primary residences).

There are still some problems because traditionally investments grow exponentially and are taxed linearly, but imo the two above changes would go a long way.

[Zetanio]

Imo capital gains should be considered income and not taxed at a different rate. I would also get rid of the free step up in cost basis for inherited properties (maybe only for non-primary residences).

There are still some problems because traditionally investments grow exponentially and are taxed linearly, but imo the two above changes would go a long way.

wars were fought over capital gains. fuck hedge funds and fuck carried interest. I agree that setting it to whatever your income tax rate is and eliminating it would be great. it'll never happen but i support it.

[archibaldcrane]

https://twitter.com/byHeatherLong/st...6-MfvpViQ&s=19

https://twitter.com/paulkrugman/stat...z9WbAmajg&s=19

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[Kaslo]

Terrible News

[Zetanio]

Did... we win?