Capital Gains

Under certain circumstances we need to sell individual stocks and move into ETF’s.  If you are at an accounting or auditing firm, they often make you sell stocks of companies that they are auditing and generally ask a lot of questions if you say that you have stocks at all.  Thus it is easier to sell them and go with ETF’s during that period.

When you sell stocks, you typically have to pay tax on your gains.  Long term gains / losses are for stocks that are held > 1 year and short term gains / losses are for stocks that are held less than < 1.

After the 2017 tax changes, there is very favorable treatment for capital gains when you have a low income.  If you have less than $39,375 in income, you have a long-term capital gains tax rate of zero (short term gains and losses are taxed at a different rate, closer to “ordinary income”).

We have these portfolios starting while the beneficiary is in jr. high onward.  Thus we have an opportunity to sell off the stocks with no capital gain taxes paid, which essentially “re-sets” the basis on the amounts invested.  This is very valuable.  The portfolio in question has over $4400 in gains and would have owed perhaps $1000 in taxes under previous methods; instead, the tax bill is zero.

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