Making changes based on your tax return

[frugal saver]

I'm finishing up my federal return this weekend, and starting on the State return. I don't often make investment decisions based on my tax return, but this year I'm:

* Dumping Lending Club. The gains are reported as OID, loan defaults as LT Capital Losses and the hassle doesn't seem worth it. Added to the fact that they're now packaging the best loans and selling them to 3rd party companies, it's time to go.

* Reconsidering my REITs. The dividends have been nice, but they're no longer more than other companies are paying and oh, my--the unrecaptured Sec. 1250 gain and non-dividend distributions are more work than they're worth.

Since this is the first year that I'm not itemizing, simple--income, interest, qualified dividends and mutual fund capital gains seem the way to go.

Is anyone else making a change based on their return?

[Jluke]

In 2014 I bought a fund called enterprise products (EPD). That tax year I received a K-1 because it was a Master Limited Partnership (MLP).

To me it was painful to do the taxes that year and I decided then that in 2015 I would sell all of EDP so I wouldn't have to deal with the K-1.

I had a tax accountant do my return for 2015 and gave him the K-1 for both tax years to work from.

So that drove an investment decision.

[disneysteve]

Is anyone else making a change based on their return?

No, though I've thought about it in prior years. One year we got slammed with capital gains from two of our taxable mutual fund accounts. It was really a fluke year, though, because we've been in both of those funds for 20 years and that was the only time that happened.

Right now, I can't think of anything I plan to change based on taxes.

[corn18]

Is anyone else making a change based on their return?

I definitely take taxes into consideration when I pick what funds go in what accounts.

I load up all my bond funds into my tax advantaged accounts. That way all the dividends don't get taxed until I withdraw them. And I should be in a lower tax bracket when I retire. If I had REITs, they would go in the tax advantaged accounts as well.

In my taxable, I buy total market index funds (FIDO) that are very tax efficient because they have very low capital gains and 90% of the dividends are qualified which means they are taxed as capital gains vs ordinary income. I also put my international funds in my taxable to take advantage of the foreign tax credit. This is the first year I have put bonds in my taxable account but I purchased tax free muni bonds.

Tom

[TexasHusker]

I think I'm going to try to make a lot less money this year so I don't have to pay taxes. I figured out that if I don't make anything, I might even be able to withdraw from the public treasury !

[MakeAStash]

Getting away from dividends and moving toward capital gains. At least capital gains can be offset with losses.

[corn18]

I think I'm going to try to make a lot less money this year so I don't have to pay taxes. I figured out that if I don't make anything, I might even be able to withdraw from the public treasury !

Mighty helpful, this.

[TexasHusker]

Getting away from dividends and moving toward capital gains. At least capital gains can be offset with losses.

Absolutely ! The more losses you have, the less tax you pay !

[corn18]

Absolutely ! The more losses you have, the less tax you pay !

It's called tax loss harvesting and it is a proven method to take advantage of the ups and downs in the market. Maybe if you didn't have your head so far up your "I think the market is stupid" camp, you could contribute to a discussion on such a powerful tool, vs. your normal silliness.

For those that are more open minded, the concept is simple: when you have an unrealized loss, you sell the position and take the loss. Then buy a similar position at the lower price. For example, if the market tanked and I had a position in FSTVX Fidelity Total US Market, I could sell that position and record the loss. Then immediately buy VTSAX Vanguard Total Stock Market with the proceeds. Essentially, I lock in the losses that I can claim on my taxes as a capital loss to offset any gains I may have or will have.

One must be careful to avoid the wash sale rules, but using different institutions takes care of this. You can also do this with ETF's.

Tom

[msomnipotent]

I have decided to start writing down my donations. I thought it was too much of a PITA to write everything down, take pictures, assign value, and then enter all of it manually at tax time and risk a second glance from the IRS. But we have decided to have someone do our taxes for us from now on, so let them deal with the headache. Also, I need to start tracking all of our donations better. I forget to add the Salvation Army kettles, the school-based donations, and what not.

[frugal saver]

Great advice, but I don't have any earned income so everything from here on out will be taxed.

I'm going to have to start researching tax-efficient funds and make some changes that way too.

[AJ444]

It's called tax loss harvesting and it is a proven method to take advantage of the ups and downs in the market. Maybe if you didn't have your head so far up your "I think the market is stupid" camp, you could contribute to a discussion on such a powerful tool, vs. your normal silliness.

For those that are more open minded, the concept is simple: when you have an unrealized loss, you sell the position and take the loss. Then buy a similar position at the lower price. For example, if the market tanked and I had a position in FSTVX Fidelity Total US Market, I could sell that position and record the loss. Then immediately buy VTSAX Vanguard Total Stock Market with the proceeds. Essentially, I lock in the losses that I can claim on my taxes as a capital loss to offset any gains I may have or will have.

One must be careful to avoid the wash sale rules, but using different institutions takes care of this. You can also do this with ETF's.

Tom

I took advantage of Tax loss harvesting for the first time in 2015 which filled up that years deduction max of 3k with enough left over to give me 1.5 k in 2016.

I have Dividends from my Total US Stock and Total International Stock sent to my settlement fund which I then invest in my Total US bond fund. I then invest new money in the stock funds when I want to, with that I can time a tax loss harvest when the opportunity presents itself and avoid the wash sale rule.