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  • msf July 2012
Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Should You Manipulate Your Portfolio Ahead of Tax Law Changes?

Old_Skeet
edited July 2012 in Off-Topic
Some say yes ... Some say no ...

I have been harvesing unrealized capital gains at a measured pace for some years now due to the favorable treatment on long term capital gains. Although, I most likely will continue to do this ... no doubt ... I most likely will also cut the size of the harvest because of the increased tax rate.

http://finance.yahoo.com/news/manipulate-portfolio-ahead-tax-law-110000119.html

The read might provide you with a tax strategy to consider that others are using.

Good Investing,
Skeeter

Comments

  • msf
    edited July 2012
    Here's a summary of what I've posted elsewhere:

    - Tax strategies, especially if one expects rates to increase at some point, are things to be executed over many years (good for you, Skeeter!)

    - Regardless of what changes Congress makes or doesn't make for 2013, high MAGI people will be subject to a 3.8% surtax on the min of their excess over $200K/$250K (singles/couples) and their total taxable investment income (which includes bank account interest); so if you're in that range, you may want to look at minimizing MAGI or taxable investment income.
    -- One way to do the former is with Roth conversions. This works because it reduces the amount of future traditional IRA withdrawals. I've been doing this for years, to keep my tax bracket from jumping.
    -- You can reduce your taxable investment income by moving taxable fixed income into munis. They don't even need to be state exempt to skirt the surtax.

    - In the worst case (Congress does nothing), capital gains rates for assets purchased post 2000 and held 5+ years will rise only 3% (18% max rate). That's not enough of a jump for me to start harvesting gains.

    - If you took advantage of the market dip in 2008 to make significant allocation changes to your portfolio, you're likely sitting with carryover losses, which make harvesting gains futile (they only get written off against the accumulated losses, and that works the same way regardless of cap gains rate)

    - Earlier proposals removed qualified dividends (i.e. all dividends would be treated as ordinary income). All proposals currently on the table keep qualified dividends either for everyone, or for everyone with taxable income under $200K/$250K (single/couple), adjusted for inflation. Either way, I won't see my rates go up.
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