Rebalancing Taxable Investments

[Cappy]

I have a taxable brokerage with a modest amount of money in it that recently came under my control. I want to reallocate but feel a bit confused about a strategy. Is this a situation where I should consult a CPA or is there some "rule of thumb" for moving things in a tax efficient way? It's 80% in 2 individual stocks and 20% in cash/mutual funds. I'd prefer to have that stock part in index funds and to use the cash part for real estate. Capital gains on the stock is long term but significant since the shares were purchased in the mid-1990s.

[ohgillian]

I think you're right to consult someone before you go ahead, although I'm not sure who that person would by. My financial advisor is able to give me some amount of advice on that sort of thing, but isn't a full fledged "tax advisor," whatever that is.

One way to slowly chip away at the issue would be to fulfill any annual giving you do by donating stocks, then taking the same amount of money from your regular life and depositing it in the taxable account and use that to buy index funds. Of course that's only useful to you if you do much giving. I guess another option would be to sell some of the stocks with gains and offset that by selling anything you own in a taxable account with losses, but it doesn't sound like you have any losses to harvest like that (which isn't a terrible thing). Possibly a third option would be to file MFS if there's any chance you don't have a paying job and your partner does?

Hopefully someone more informed will chime in here.

[goldengirlz]

Sometimes we just have to pay taxes. 🤷‍♀️

[ohgillian]

Aug 14, 2021 14:50:37 GMT -5 goldengirlz said:

Sometimes we just have to pay taxes. 🤷‍♀️

Okay well that too! Lol.

[imojoebunny]

It depends on what the investments are. I have what I call a leftover account, which is stuff I bought early on, as a kid/young adult. I do not have any clue what the basis for it is, so I haven't sold any of it. It is not much, compared to our overall stuff, so I don't worry about it. I probably would have made a lot more money on it, had I paid attention, sold the losers and paid the taxes, long ago. I feel like consulting a CPA, and I worked for one when I was in my early 20's, would cost more than it is worth, unless your talking about more than a couple of hundred thousand. You would probably do best to use the proceeds to live like you normally could on your salary, and max out any retirement plan you have through work, and/or put your earned income into an IRA/Roth.

[konapoppy]

I agree, sometimes you have to pay taxes.

But also, was it inherited? Or just stocks someone bought under your name and you just became aware? It may impact the cost basis, which will impact the taxes.

[Cappy]

Aug 14, 2021 23:05:46 GMT -5 konapoppy said:

I agree, sometimes you have to pay taxes.

But also, was it inherited? Or just stocks someone bought under your name and you just became aware? It may impact the cost basis, which will impact the taxes.

This was a trust fund but always in my name, not inherited. The trust was finally dissolved and the assets transferred to my brokerage. We don’t do charitable giving. We both work FT and HHI is only around 125k. I know I’ll pay taxes but also know enough to know it’s not advisable to sell more stock than my income in a single year. I was thinking maybe I just try to sell x per year? I just don’t want to make our tax bracket jump by a big sell off. Maybe I’m overthinking it :-)

[Cappy]

Aug 14, 2021 21:30:37 GMT -5 imojoebunny said:

It depends on what the investments are. I have what I call a leftover account, which is stuff I bought early on, as a kid/young adult. I do not have any clue what the basis for it is, so I haven't sold any of it. It is not much, compared to our overall stuff, so I don't worry about it. I probably would have made a lot more money on it, had I paid attention, sold the losers and paid the taxes, long ago. I feel like consulting a CPA, and I worked for one when I was in my early 20's, would cost more than it is worth, unless your talking about more than a couple of hundred thousand. You would probably do best to use the proceeds to live like you normally could on your salary, and max out any retirement plan you have through work, and/or put your earned income into an IRA/Roth.

This was my first instinct but my hesitation was just that then it would be tied up and we don’t have liquid funds other than 6 months savings. Having the brokerage was always a nice psychological benefit.

[ohgillian]

Aug 15, 2021 8:08:23 GMT -5 Cappy said:

Aug 14, 2021 23:05:46 GMT -5 konapoppy said:

I agree, sometimes you have to pay taxes.

But also, was it inherited? Or just stocks someone bought under your name and you just became aware? It may impact the cost basis, which will impact the taxes.

This was a trust fund but always in my name, not inherited. The trust was finally dissolved and the assets transferred to my brokerage. We don’t do charitable giving. We both work FT and HHI is only around 125k. I know I’ll pay taxes but also know enough to know it’s not advisable to sell more stock than my income in a single year. I was thinking maybe I just try to sell x per year? I just don’t want to make our tax bracket jump by a big sell off. Maybe I’m overthinking it :-)

I'd be curious if you get a step up in cost basis upon dissolution of the trust. You may already know the answer but if you aren't sure, that does seem worth a consult with a CPA. 

[sicilygirl]

Aug 16, 2021 9:08:57 GMT -5 ohgillian said:

Aug 15, 2021 8:08:23 GMT -5 Cappy said:

This was a trust fund but always in my name, not inherited. The trust was finally dissolved and the assets transferred to my brokerage. We don’t do charitable giving. We both work FT and HHI is only around 125k. I know I’ll pay taxes but also know enough to know it’s not advisable to sell more stock than my income in a single year. I was thinking maybe I just try to sell x per year? I just don’t want to make our tax bracket jump by a big sell off. Maybe I’m overthinking it :-)

I'd be curious if you get a step up in cost basis upon dissolution of the trust. You may already know the answer but if you aren't sure, that does seem worth a consult with a CPA. 

No step up upon the dissolution of the trust unfortunately. 

Cappy  I think this is a worthwhile time to call in a professional.  A CPA is probably not your best bet here though, so I would recommend looking for a financial advisor/CFP at a firm that has tax experts on staff.  They can help you take advantage of strategies such as tax loss harvesting (selling underperforming stocks at a loss to offset gains you have in the same period) and make recommendations on the best type of investments to hold in taxable brokerage accounts.  I would look specifically for a fiduciary, someone who charges a flat fee or a percentage of assets under management, meaning that they aren't incentivized to sell you certain products because it generates a commission for them but rather have a fiduciary duty to put your interests first.

I can make a recommendation of a firm I worked with in the SoCal area, if you're interested.