Capital Gains and Losses – Timing Is Everything!


Capital Gains and Losses – Timing Is Everything!

December 9, 2014

by Glenn Frank

PDF Print Email Reminder Share

Seth Klarman’s 2021 Letter: Baupost’s “Never-Ending” Hunt For Information

Baupost's investment process involves "never-ending" gleaning of facts to help support investment ideas Seth Klarman writes in his end-of-year letter to investors. In the letter, a copy of which ValueWalk has been able to review, the value investor describes the Baupost Group's process to identify ideas and answer the most critical questions about its potential Read More

Previous 1 (current) 2 3 Next

Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.

“The hardest thing in the world to understand is the income tax.” -Albert Einstein

This article will lend insight into one of the few areas that investors actually can control in our new American Taxpayer “Relief” Act environment.

Accordingly, do your best to understand tax laws; have them work for your clients whenever possible. You can minimize portfolio taxes without compromising the essence of an investment strategy.

Unlike most forms of income, the timing of taxation on capital transactions is largely up to the investor. Regardless of economic gain, taxes are not incurred until investments are sold. With proper planning, tax rates should be far less than the marginal rate on ordinary income.

This article ignores state taxes, which could impact decisions. For example a client may be moving to or from a no capital gains tax state such as AK,FL,NV,NH,SD,TN,TX,WA and WY. If clients need to pay state taxes, the payment date can be critical. If included in the alternative-minimum tax (AMT) in the year paid, then no federal tax savings may result, as state taxes are a preference item.

The schedule D netting process

The top half of schedule D nets short-term (one year or less) realized gains against short-term realized losses/short-term loss carryovers from the prior year.

The lower half of Schedule D nets long-term realized gains plus capital gain distributions from mutual funds against long-term realized losses/long-term capital loss carryovers from the prior year.

Here are the possible outcomes:

A) Net short and net long term gains – short-term gains are taxed at highest marginal tax rate and the long-term gains are taxed at capital gains rate (one of four different rates, depending on income: 0%, 15%, 20% or 23.8%);

B) Net short-term and net long-term losses – you can deduct up to $3,000 in losses against other income and carry forward any excess to the following year.

C) Net short-term losses or gains are different from net long-term losses or gains and produce an overall net gain or net loss – if a net gain, see A. If a net loss, see B. As an example, a net short-term capital loss of $7,000 and net long-term capital gain of $16,000 would yield a net long-term capital gain of $9,000 which is subject to the long-term capital gains rate.

PDF Print Email Reminder Share

Previous 1 (current) 2 3 Next

Remember, if you have a question or comment, send it to [email protected]

Updated on

The Advisory Profession’s Best Web Sites by Bob Veres His firm has created more than 2,000 websites for financial advisors. Bart Wisniowski, founder and CEO of Advisor Websites, has the best seat in the house to watch the rapidly evolving state-of-the-art in website design and feature sets in this age of social media, video blogs and smartphones. In a recent interview, Wisniowski not only talked about the latest developments and trends that he’s seeing; he also identified some of the advisory profession’s most interesting and creative websites.
Previous article Is Discipline Over-rated?
Next article Apple Inc. Lists The Top Apps Of 2014

No posts to display