I thought I would do a little write up about tax gain harvesting for those that don't know anything about it.
For those of you who are unaware, for taxable accounts if your taxable income is below certain thresholds it makes sense to sell stocks you have long-term gains (LTG) in and immediately buy them back to reset the cost basis to a higher rate.
The currently threshold for single filers is $39,375 and $78,750 for a married couple.
So for example you're single and you made $40,000 in total income. This include $38,000 in wages and $2,000 in LTG (this include stock sold and qualified dividends).
To keep things simple you total deductions are $12,000. So you're taxable income is $28,000. That $2,000 in LTG is now tax free. So really your taxable income drops to $26,000.
So now for the why should I give a flying fudge. Because if you look at the difference between $28,000 and $39,375 it is $11,375 of additional LTG income you could have tax free. This can be from dividends, or LTG you realize on stock.
Now the LTG on stock is a long-term play if you keep buying it back.
For example you buy stock A at the beginning of the year for $10,000. It goes up 10% by December so it's $11,000. You sell it all in one day realizing the 10% or $1,000 dollar gain. You immediately buy it back for $11,000. The Government says, you gained $1,000 dollars but you don't owe any taxes. Your new cost basis is $11,000.
Next year it goes up another 10% so you have $12,100. 10% or $1,100 in gains, no taxes owed and you walked the cost basis up again.
Rinse and repeat until you start getting close to the $11,375 limit. In otherwords your investment has grown to $110,000 and if you sold it all at once you wouldn't owe any taxes on it as opposed to if you held it the whole time. You're looking at a gain of $10,000'ish instead of $100,000.
It's one way to almost turn a taxable account into a ROTH one. Keep walking the cost basis up if you can so when you finally sell it for good you pay a lot less, if not nothing.
OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August, and February. - Pudd'nhead Wilson's Calendar