I have only ever purchased stocks, never sold anything. The vast majority has been in big name tech stocks that have done very well over the last 15ish years.
Now I realize I’m not really diversified at all and want to hedge against a tech downfall. I’ll end up paying 20% capital gains taxes on whatever I sell so that I can reinvest in something else.
How should I calculate how much I’m willing to pay in taxes? What should I consider to come up with my figure?
How much should I pay in taxes on my stocks?
byu/earlyentryiag inpersonalfinance
Posted by earlyentryiag
7 Comments
Keep a good record of what you sold so you can cry 20 years from now. Best of luck.
It sounds like you except significant income, so keep in mind that NIIT will very possibly apply as well (an additional 3.8% tax on the capital gains)
[https://www.fidelity.com/learning-center/trading-investing/net-investment-income-tax](https://www.fidelity.com/learning-center/trading-investing/net-investment-income-tax)
If you are in the 20% bracket, its actually gonna be 23.8% plus state tax.
Idk but to offset whatever you might owe, you could move some $ into an automated investment platform like Wealthfront that would do some tax loss harvesting for you
Use this calculator. Fill in the missing information.
* https://smartasset.com/investing/capital-gains-tax-calculator
If you do sell, remember to make estimated tax payments to avoid penalties. Are you charitable? You could gift some but this doesn’t actually leave YOU with any money. Could space it out over at least two tax years, but I’m assuming your wage income will remain quite high if you’re in the income bracket that results in 20% cap gains rate – don’t forget state if your state taxes income.
You could learn to do this manually using the forms or a tax software, it’ll be quite educational.
If you expect to leave a significant amount to your heirs, that is really the biggest impact of paying those capital gains taxes. Because the basis resets when they inherit and totally eliminates capital gains.
If you’re not going to leave it to heirs, a consideration is selling now at 20% capital gains, or possibly in later years when your income might be lower and your capital gains rate would be 15%. However, as you’ve already noted, there is risk to continue holding undiversified equities.
If you are still investing aggressively, you can improve your diversification without selling, by buying strategically to balance your existing portfolio, e.g. with small cap and value stock funds.
Unfortunately, it’s not a simple deterministic formula, because it involves some assumptions and risk evaluation.