teslamotorclub: Tax questions, implications and strategies part 1

A lot of us are going to have to deal with tax issues when we report our 2013 taxes considering the dramatic rise in TSLA's stock price (and options).

So I'm starting a thread for us to share questions, insights and advice regarding tax implications. This is for those who already have stock/option gains and also for those who are considering purchasing new stock/options and have questions.

Disclaimer: I know probably none of us are accountants (maybe there might be a few) and we're from different countries. So, this thread isn't for strict, accountable advice. Rather it's more a preliminary stage to field questions. Before making a major financial/investment decision, make sure to consult your accountant because each person's situation can be different.
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Smartypants answer #1: Make a lot of other dumb trades and offset your ST gains in TSLA with your ST losses in ManWasIDumbDotCom.

Smartypants answer #2: Don't sell. Don't sell. Don't sell. My investments in a whole coffee-plantation-worth of a rolled-over-and-died IPO called Starbucks now is such that its paltry dividend is for all intents and purposes equal to my per-share cost. Entry point for a little company one J.D.Rockefeller Sr. started long before even I was born is not a whole lot different.

Smartypants answer #3: If you're going to be a trader, confine trading to your tax-deferred IRA.

Almost-usable answer #4: If you're sitting on a passel of unrealized gains and are worried about s-t fluctuations, cover your butt with options.

Good luck!
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So, as a California resident, my accountants advised various stuff. This is advice from them to me, obviously I'm not qualified to give this advice to anyone else, and anyway I don't know others' situations, so don't blame me.

I don't currently have to pay estimated tax. I believe their answers would be different if I did. I almost certainly will have to next year.

In December I should figure out how much capital gains (long term and short term) I made on all my trading this calendar year. This will actually be easy for me, since I keep a spreadsheet with all the trades. I could probably also get the same info from my broker, but I maintain the spreadsheet so that I'm continually reviewing the consequences of my good and bad trades.

Then, in December, I should pre-pay the CA state tax I estimate. This is because it's deductible from the income for Federal tax in the year in which it is paid, not the year it's due, so this will even out the total amount at least a little bit. Note that if you need to pay more than a certain amount (I forget how much, but if you're thinking about the problem, this means you!) CA now insists that it must be paid electronically, and it takes a non-trivial amount of time to set up to do that, so don't leave it till the last minute.

I can wait until April to pay the Federal tax. Note that this will probably require not only the actual estimated tax (my tax always takes longer to finalize, due to being Australian and having investments over there, but you have to pay up front), but I will probably have to pay quarterly estimated tax for the 2014 following year.

They also put in a very strong hint to make sure that I have enough money on hand to pay what I need to pay. This is important advice. If it's all tied up in Tesla stock, and everyone needs to cash out at the same time, it could easily force the price down. If you need proof, look back to 2001, and note just when the real dip from the Internet Bubble hit; it was pretty close to when all the Sillycon Valley people's tax came due on all the bubble stocks from 2000. While I personally avoided that trap, I have a friend who lost his house over it; he owed more tax on the profits from 2000 than the investments were worth in April 2001.

As AudobonB said, if you keep holding you don't owe the tax yet! Wait until you retire then sell it in little bits

Of course you can't hold options that way; they expire! If you sell the options before expiry for a profit, that is (probably short term) capital gains. But if they were calls, and you exercise them and turn them into shares, you just add the cost of the calls to the cost basis of the converted shares, and don't owe any tax yet. However the clock restarts for the holding period, so you have to wait a year from exercise before the gains become long term, no matter how long you held the options.
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If you buy a Model S you get a $7500 federal tax rebate. I'm going to do this to nullify a lot of the taxes I would've had to have paid otherwise
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I actually have a masters degree in accounting, but still take the things I say with a grain of salt.

Depending on your tax bracket the difference between l-t tax rate and s-t tax may not be that big. Say you are in 25% tax bracket, your l-t gain would be 15%. If you are spending 10% to hedge your position with puts, then you might as well be selling today if you are only holding to meet the 1 year l-t tax threshold.

Example: Say you bought $60,000 in shares and are up $40,000 in gains and have held for 5 months only. You can sell today and pay $10,000 in taxes (assuming you don't jump to higher 28% marginal tax rate). Or you can hedge today with J14 ATM put options and pay a 20% premium or $20,000 which makes no sense. OTM options for J14 are still expensive. In doesn't make much sense to hedge purely for tax reasons.

My best advice is to trade the best you can and do not factor taxes into your trade decisions. Only in very rare circumstances people need to consider tax implications and those people should consult a CPA. Most people should focus more on pocketing gains and not thinking too much about holding solely for l-t tax purposes. I am not advocating to sell but just saying if you think the stock may correct then sell.

I know I am not selling, because I think it is going up. My wife is a CPA, but we know better not to focus too much on tax implications.

Here is a semi-tax strategy I could recommend though: If I thought a big correction was coming, I would sell my Tesla stock say at $120, and have to pay s-t capital gains tax. But if the stock were to go down it would have been a good move. In which case I would buy some call options. If they go up I win, if they don't then you still bought them at a 25% discount because the loss would offset the earlier s-t capital gain you had and up to 39.6% if you are in highest tax bracket.
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Here's an informative 2013 tax guide from Fidelity. Has some helpful info.

A taxpayers guide to 2013 - Fidelity Investments
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Based on that link DaveT provided here is the best tax strategy that I have come up with:

Buy as much Tesla shares as possible. Hold on for a few years, stock will go gangbusters, quit your job, retire and sell $72,500 (or even more with deductions) worth of shares every year and pay $0 in taxes. Sounds like a winner to me if you bought enough shares initially and as long as you can live off of $72,500 a year.
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I'm not an expert in taxes, but wouldn't that mean my long-term capital gains would be 0% if I retire and my social security, interest, dividend incomes stay below $72,500. i.e. Would I be able to withdraw a million dollars worth of gains and be taxed at 0% on the gains because my income was less than 72.5K or would the gains also be considered income, thus I'd have to pay some major tax on that?
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jak said: ?

I'm not an expert in taxes, but wouldn't that mean my long-term capital gains would be 0% if I retire and my social security, interest, dividend incomes stay below $72,500. i.e. Would I be able to withdraw a million dollars worth of gains and be taxed at 0% on the gains because my income was less than 72.5K or would the gains also be considered income, thus I'd have to pay some major tax on that?
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To keep it simple (in reality taxes are more complicated): if you have $20k in other income, then you can realize up to $52.5k of L-T Cap gains that year and pay 0% on the L-T Cap gains. If you realize $1,000,000 of LTCG then the rest above $72.5k will be taxed at 15% and then 20%, and you might incur additional medicare taxes too. If you earn $70k, then only the first $2.5k of LTCG is taxed at 0% and the rest at 15% or 20%.

Note the $72.5k threshold is for married filing jointly. That number is only half for single individuals.
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Any idea if one should pay estimated taxes every quarter as they get profit from Tesla stock/options? If so what are the rules?
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if anyone is interested. I have the opposite problems. I have too much tax credit from all the solar assets I own. Need to pass them through to someone.
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simplesolar said: ?

if anyone is interested. I have the opposite problems. I have too much tax credit from all the solar assets I own. Need to pass them through to someone.
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I volunteer!!!!! Solar credits can be rolled over to the next year. EV tax credit cannot be rolled over (unless things have changed). I did my solar 4 years ago.
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Just a heads up. If you have a lot of taxable realized gain from this year, talk to your accountant now before year-end to evaluate your tax consequences and options.
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My situation is that i have a large IRA account and a smaller cash account. During the heyday mid-year, I decided to start investing my cash account too, even though that wasn't wise since I really needed that money for our house, then under construction. I ended up turning our $40k cash buffer into nearly $250. (upgrades? sure!) By dumb luck, I had to cash out when the house expenses started to come in, and that timing picked the top. My IRA on the other hand, I kept on and took the Q3 losses in there.

So my realized profits of ~200k are in my cash account, and my much larger losses are in a tax deferred account. Brilliant, right?

So I figure I have to pay ~60k in taxes right? I am just figuring out what expenses I can push into this year, like paying property taxes in Dec rather than Jan.
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austinEV said: ?

My situation is that i have a large IRA account and a smaller cash account. During the heyday mid-year, I decided to start investing my cash account too, even though that wasn't wise since I really needed that money for our house, then under construction. I ended up turning our $40k cash buffer into nearly $250. (upgrades? sure!) By dumb luck, I had to cash out when the house expenses started to come in, and that timing picked the top. My IRA on the other hand, I kept on and took the Q3 losses in there.

So my realized profits of ~200k are in my cash account, and my much larger losses are in a tax deferred account. Brilliant, right?

So I figure I have to pay ~60k in taxes right? I am just figuring out what expenses I can push into this year, like paying property taxes in Dec rather than Jan.
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Sounds right to me; you might look around for unrealized ST losses in other parts of your taxable portfolio.

Oh, and I hope that this was a typo, omitting an all-important "k":

I ended up turning our $40k cash buffer into nearly $250.
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Robert.Boston said: ?

Sounds right to me; you might look around for unrealized ST losses in other parts of your taxable portfolio.

Oh, and I hope that this was a typo, omitting an all-important "k":
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Yes, 250k, sorry about that. I highly recommend falling into $200k for anyone who is completing construction of a new custom house. It streamlined quite a bit.

I don't actually have any taxable losses. I managed to isolate them all in my tax deferred accounts. My Taxable accounts were just tesla stock and options, and another account with boring bond funds and dividend stocks that are doing fine. Those I am holding for preferred dividend status.
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austinEV said: ?

Yes, 250k, sorry about that. I highly recommend falling into $200k for anyone who is completing construction of a new custom house. It streamlined quite a bit.
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There are many worse problems to have.

In California, you can pre-pay estimated State tax payments at the end of December, to claim them against your federal taxes next year. I don't know whether you can do that for property taxes though.
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austinEV said: ?

My situation is that i have a large IRA account and a smaller cash account. During the heyday mid-year, I decided to start investing my cash account too, even though that wasn't wise since I really needed that money for our house, then under construction. I ended up turning our $40k cash buffer into nearly $250. (upgrades? sure!) By dumb luck, I had to cash out when the house expenses started to come in, and that timing picked the top. My IRA on the other hand, I kept on and took the Q3 losses in there.

So my realized profits of ~200k are in my cash account, and my much larger losses are in a tax deferred account. Brilliant, right?

So I figure I have to pay ~60k in taxes right? I am just figuring out what expenses I can push into this year, like paying property taxes in Dec rather than Jan.
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I think you might need a little more for taxes, but that depends on how much you and your wife made this year. Lets assume that you both made $150k this year. With $210k in investment income that is $360k total. In this case you will owe almost 33% on your investment income (assuming that your payroll deductions are pretty accurate as far as taxes go). Also any MAGI above $250k (married) and you pay additional 3.8% Obamacare tax on passive income. So you are looking at ~35% on your $210k of passive income or roughly $80k.

Best way to minimize that tax is to lower your taxable income or MAGI specifically. Your marginal tax bracket is 36.8% (in my scenario), so I would recommend maxing out your 401k, IRA, 457 (if you have one), etc.

If you qualify for trader status (you probably don't) then you can write off that lunch that you were offering to take me to; as long as we go by the end of the year. Let me know if Thursday the 26th works for you?
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sleepyhead said: ?

I think you might need a little more for taxes, but that depends on how much you and your wife made this year. Lets assume that you both made $150k this year. With $210k in investment income that is $360k total. In this case you will owe almost 33% on your investment income (assuming that your payroll deductions are pretty accurate as far as taxes go). Also any MAGI above $250k (married) and you pay additional 3.8% Obamacare tax on passive income. So you are looking at ~35% on your $210k of passive income or roughly $80k.

Best way to minimize that tax is to lower your taxable income or MAGI specifically. Your marginal tax bracket is 36.8% (in my scenario), so I would recommend maxing out your 401k, IRA, 457 (if you have one), etc.

If you qualify for trader status (you probably don't) then you can write off that lunch that you were offering to take me to; as long as we go by the end of the year. Let me know if Thursday the 26th works for you?
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I am loving the personalized tax advice! Fortunately(?) my wife makes closer to zero. She has a lovely retail biz that employs people but generally makes little or provides a paper loss. I suspect this year will be a doozy so my 60k estimate might be on the high end. I might be at risk of running into hobby-loss rules in fact.

I will send you contact info on that lunch. Sounds like I need to run up a big lunch bill to zero out my taxes.
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austinEV said: ?

I am loving the personalized tax advice! Fortunately(?) my wife makes closer to zero. She has a lovely retail biz that employs people but generally makes little or provides a paper loss. I suspect this year will be a doozy so my 60k estimate might be on the high end. I might be at risk of running into hobby-loss rules in fact.

I will send you contact info on that lunch. Sounds like I need to run up a big lunch bill to zero out my taxes.
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Even if you don't qualify for "trader status" I still think that you can write off any investment related expenses as long as you itemize deductions and have miscellaneous losses above 2% of AGI, with the first 2% not deductible.
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OK, I am having some tax difficulties. I understand that a wash sale is one "that occurs when an individual sells or trades a security at a loss, and within 30 days before or after this sale, buys a �substantially identical� stock or security, or acquires a contract or option to do so."

My problem is that it seems to appear that my 1099-B from my brokerage considers "substantially identical" to mean the EXACT SAME stock or the EXACT SAME option. I could be reading it wrong as it gave me quite the headache trying to follow all the trades but that's what it looks like.

Based on this, it looks like my options are to (1) submit what my brokerage gave me in regards to the way they considered a wash sale and potentially get in trouble or (2) spend a full weekend to go through my trade activity of several hundred trades and manually determine cost basis on each one and get flagged for submitting a difference from that my brokerage gave me and then get in trouble for making a mistake somewhere along the line.

And I guess there is always option (3), hire a tax preparer so that way he/she is on the line if I get audited but that's pretty expensive and I've already done my taxes with the exception of my trades.

Is my brokerage messed up or is this common for other brokerages? What do you guys do? I've heard it can be several hundred dollars to have someone do your taxes for even a basic preparation and that's a lot of money for me so I'd rather not go that option if possible. Thanks in advance.
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Jonathan Hewitt said: ?

OK, I am having some tax difficulties. I understand that a wash sale is one "that occurs when an individual sells or trades a security at a loss, and within 30 days before or after this sale, buys a �substantially identical� stock or security, or acquires a contract or option to do so."

My problem is that it seems to appear that my 1099-B from my brokerage considers "substantially identical" to mean the EXACT SAME stock or the EXACT SAME option. I could be reading it wrong as it gave me quite the headache trying to follow all the trades but that's what it looks like.

Based on this, it looks like my options are to (1) submit what my brokerage gave me in regards to the way they considered a wash sale and potentially get in trouble or (2) spend a full weekend to go through my trade activity of several hundred trades and manually determine cost basis on each one and get flagged for submitting a difference from that my brokerage gave me and then get in trouble for making a mistake somewhere along the line.

And I guess there is always option (3), hire a tax preparer so that way he/she is on the line if I get audited but that's pretty expensive and I've already done my taxes with the exception of my trades.

Is my brokerage messed up or is this common for other brokerages? What do you guys do? I've heard it can be several hundred dollars to have someone do your taxes for even a basic preparation and that's a lot of money for me so I'd rather not go that option if possible. Thanks in advance.
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This is actually pretty common; the thing to remember is that even though you may have a wash sale, you are not really losing out on much, as the cost basis gets adjusted. The best thing to do is to follow your option 1. Everything will balance out in the end. Tax software (I use Turbo Tax) is also easy to use - just download the info from your broker.
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Submit the form the broker gave you. I have accidentally held the same position in two different brokerages in my first year of trading. When I sold and bought and sold etc, I should have actually done the funky math to make the two brokerages align and have wash sales on 500 shares of a 2 dollar stock. The two brokerages don't communicate, so they didn't know that i had those sales, but frankly it's not worth it to try to do that reconciliation. The difference the gov would get is minimal iand they didn't say anything about it.
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Thanks for your responses!
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With all the usual disclaimers ("I am not a lawyer, accountant, etc. and your decisions are your own"), I agree with reporting what your brokerage gave you. Any deviation from that is likely to attract an audit, which is the worst of all outcomes even if you have meticulous support for each and every number on your tax return. Why ask for trouble?
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I got my Schwab tax statement for 6 months worth of trading and it is 78 pages long!

The right thing to do would be to check over every transaction and make sure that you are reporting the wash sale rule properly. You can pay a CPA firm thousands of dollars to do that (if you have as many trades as I do) and then for a few thousand dollars more cross reference all of those trades against your trades in a different trading account. And then for good measure you can pay a few thousand dollars more to cross reference all trades against your 401k accounts and other retirement accounts. Only to find out that you might owe the government a couple extra dollars.

You can do all that or rely on the statement that your broker sent you.

It is up to you what to do. If you choose the former then my wife and I (we run our own CPA practice from home) will gladly take thousands of dollars off your hands to find out if the wash sale rule was applied properly.

On second thought, I don't know if I would want to do all of those calculations even for thousands of dollars.

It is a really dumb rule and has to go...
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sleepyhead said: ?

On second thought, I don't know if I would want to do all of those calculations even for thousands of dollars.
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Yeah, I'd rather give you several thousand dollars to invest for me! I'm glad I'm not the only one who thinks that law is outdated and dumb.
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Agree with above responses. Similar to sleepy I get 40-80 page trade docs from broker who computes wash etc. By a long shot your best bet is to use those results exactly, then use Turbo Tax to automatically input, and consider purchasing (it's very cheap) the TTax representation insurance for any audit.
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Jonathan Hewitt said: ?

Yeah, I'd rather give you several thousand dollars to invest for me! I'm glad I'm not the only one who thinks that law is outdated and dumb.
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When I worked on Wall St. it was my dream to start my own hedge fund and grow it big like David Einhorn did (he started his hedge fund with $900k).

I might consider doing it one day, I imagine that the regulations around it are too prohibitive nowadays. Plus I think that you have to pay something in the order of $50k to register a hedge fund. I will look into the regulations one day.

The only reason that I wouldn't start a fund now is because we are going into our 6th year of this bull market and there might not be but another 1-2 years before the run ends. I would not want to raise money now only to lose it for my clients. The catch 22 situation here is that I would love to start a fund at the bottom of a bear market, but by then no one has any disposable cash to invest in such a fund. It really is a lose-lose situation.

I only invest in solar and TSLA nowadays and I believe that I know how to make money in these two sectors as long as there is a continuation of the bull market. If the market turns south then these two sectors will get hit the hardest. I do not diversify, because that is a risk that I am not willing to take since i do not have any more time to study other industries.

I know of a guy who ran a hedge fund with 100% of funds invested in one company. If I ran a hedge fund, then my strategies and risk profile could be similar to that. If I invested other peoples' money then I would have to set a limit of no more than 3%-5% of their investment portfolio invested in my fund.

I would love to do it, but the regulation might be impossible to get around (accredited investor status, etc.).
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Just an FYI, I had penalties owed due to not paying estimated taxes on my TSLA sales in 2013. I'd somehow had the impression that since I could have offsetting losses as the year went on that it wasn't a problem to just pay it all on April 15th when the books were worked out.

On the other hand, the penalties were fairly small.
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Jonathan Hewitt said: ?

And I guess there is always option (3), hire a tax preparer so that way he/she is on the line if I get audited but that's pretty expensive and I've already done my taxes with the exception of my trades.
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Hiring a tax preparer will not put them on the line and make you innocent. Not at all. You will either have to pay them to sort out the wash sales or do it yourself and provide them with the correct info. The only [small] problem with option 1 (report according to the 1099-B when you know it's wrong) is technically it's tax fraud if over a certain percentage of your income. Having said that, unless the amount of tax is a lot, the chances they would charge you with fraud is about the same as your chances of getting hit by a meteor this week. That's true even if you get caught, and you almost certainly won't. As somebody who is licensed to represent taxpayers before the IRS, I can tell you that almost every tax preparer would report what was on the 1099-B and pretend they didn't notice the other wash sale trades unless you told them.

The IRS is well aware that those brokerage statements are frequently wrong. Aside from common mistakes, there are a host of other reasons why your basis might be different than what is reported. That's why they have a provision to provide a different basis. You just have to enter a code on the Form 8949 columns f and g. In other words, it's not uncommon and won't by itself raise any flags.

There is another option. You can point out the incorrectly reported transactions to the brokerage and ask them to provide you with a corrected 1099. Again, unless it's a lot of money, is it worth it?

Because I'm licensed, I can't advise you to choose option 1, but...

Life is short. Go out and live it.
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Taxes are another reason why most of my trading is in futures now... no need to report individual trades (and favorable tax rates on profits). Filling out tax forms is a pita... just thinking about my tax return from 2 years ago makes me go into the fetal position :crying:
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Likewise, I do all my short-term trading in a tax-deferred account. Possibly not the most advantageous from a lifetime tax perspective, but it has the singular merit of keeping my income tax preparation simple(r).
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I have noticed discussion of wash sales on here, but I haven't seen any discussion of straddles. I have just been reading that protective puts and even some covered calls are treated as straddles for tax purposes, so the loss is deferred until the underlying stock is sold.

2013 was my first year trading options, so I'm new to this. Can anybody recommend any software to sort out this kind of transaction automatically? I have been thinking of trying Tradelog, but I'm not sure if it will do this or not.

Many thanks for any advice.
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DaveT said: ?

A lot of us are going to have to deal with tax issues when we report our 2013 taxes considering the dramatic rise in TSLA's stock price (and options).

So I'm starting a thread for us to share questions, insights and advice regarding tax implications. This is for those who already have stock/option gains and also for those who are considering purchasing new stock/options and have questions.

Disclaimer: I know probably none of us are accountants (maybe there might be a few) and we're from different countries. So, this thread isn't for strict, accountable advice. Rather it's more a preliminary stage to field questions. Before making a major financial/investment decision, make sure to consult your accountant because each person's situation can be different.
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so I had my accountant do my taxes and turns out I owe a large sum of money...primarily from selling some of my LEAPs at the end of 2013 for massive gains. Unfortunately I only have about half of the cash on hand that I actually need to pay off my 2013 taxes by April 15th as of right now.

The rest of my liquid equity is fully vested in some exercised TSLA shares from my shorter term Sept 2013 options that expired deep ITM and 2016 LEAPs that have big gains already. I don't want to sell these anytime soon as I'd have to pay much higher tax rates on short term gains than if I wait until the end of the this year.

I've asked my accountant to see if its possible for me to pay the IRS in installments over the rest of this year instead of all on April 15th...that is my first option.

my other options are the following:

a)can transfer my account to another broker that offers margining on TSLA stock and borrow cash on margin to pay the rest of my taxes? Would only need to leverage a tiny bit to maybe 1.1:1 to do this My current broker(IB) doesn't allow any margining at all on any stocks that are up over 100% in the past year which include my only stock holdings! Lucky me I guess.

b)if I can get granted the IRS extension then start selling deep OTM calls to generate extra cash to pay off my taxes over the installment plan.
My worry here is that if the stock crushes it and goes up another 100% within a 2-3 month period I could get screwed out of much of these gains.

c)transfer to the other broker and use margin to sell puts or put spreads to generate cash

anyone else have any other creative ideas?

Side note: i now also have a very large IRA from enormous gains in TSLA stock/options, but can I borrow against that somehow to pay taxes? I don't think so
(I already borrowed against my 401k a couple years ago to help put a down payment on my house so can't do that one again)
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My income is earned unevenly throughout the year. It makes cash management a little bit of a pain. This isn't necessarily creative but I manage my quarterly tax payments / cash flow by borrowing against the CSV of my whole life policy. When I get paid, I pay back the loan. It's easy and keeps me from jacking around with my investments and causing unwanted tax consequences.
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Beavis said: ?

My income is earned unevenly throughout the year. It makes cash management a little bit of a pain. This isn't necessarily creative but I manage my quarterly tax payments / cash flow by borrowing against the CSV of my whole life policy. When I get paid, I pay back the loan. It's easy and keeps me from jacking around with my investments and causing unwanted tax consequences.
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Interesting, I don't have whole life insurance but this would be an interesting idea for people who do
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TSLAopt said: ?

so I had my accountant do my taxes and turns out I owe a large sum of money...primarily from selling some of my LEAPs at the end of 2013 for massive gains. Unfortunately I only have about half of the cash on hand that I actually need to pay off my 2013 taxes by April 15th as of right now...
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Like almost every tax question in the world, the answer is "It Depends!" You have lots of options. The best solution depends on your situation. The biggest question is when will be able to pay the tax? Or should I say when will some of your gains be long term and then qualify for much lower tax rates next year? Warning: this advice won't work for everybody. Be sure to check with your tax adviser before implementing any plan.

1) you can usually get an installment plan from the IRS. There's a fee to apply and the interest rate is probably slightly lower than margin interest rates at most brokerages. Generally you have to be current on your 2014 estimated taxes, which will probably compound the problem you're in, and you can't make a late payment or they can call in the loan and start collections. The interest on underpayment of estimated tax is much lower, and you generally have to pay that first, so the effective interest rate on the installment plan is higher than it looks.

2) You can borrow from your IRA up to 60 days without tax consequences. This has limitations. Don't do it more than once a year for example.

3) Do you have any equity in your home?

4) Again, how soon will be able to pay what you owe? One option is to file April 15 and pay what you can with the return. They will start collections but usually won't get too aggressive as long as you keep whittling away at the debt every time they send you a new bill. This usually works if you can pay it off in a few months. Interest rate on underpayment is 0.5% per month after Apr 15 plus about 4% /yr.

5) File an extension. Be sure to disclose what you owe on the extension, and pay as much as you can. They won't start collections at all until you actually file the return which won't be due until Oct 15. Interest rate is similar to option 4 above.

6) Do you already have a car loan on your MS? If not, get one. Auto loan interest rates are shockingly low.

7) Other options are available but don't know what will work without more specific info about your situation.
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hcsharp said: ?

Like almost every tax question in the world, the answer is "It Depends!" You have lots of options. The best solution depends on your situation. The biggest question is when will be able to pay the tax? Or should I say when will some of your gains be long term and then qualify for much lower tax rates next year? Warning: this advice won't work for everybody. Be sure to check with your tax adviser before implementing any plan.

1) you can usually get an installment plan from the IRS. There's a fee to apply and the interest rate is probably slightly lower than margin interest rates at most brokerages. Generally you have to be current on your 2014 estimated taxes, which will probably compound the problem you're in, and you can't make a late payment or they can call in the loan and start collections. The interest on underpayment of estimated tax is much lower, and you generally have to pay that first, so the effective interest rate on the installment plan is higher than it looks.

2) You can borrow from your IRA up to 60 days without tax consequences. This has limitations. Don't do it more than once a year for example.

3) Do you have any equity in your home?

4) Again, how soon will be able to pay what you owe? One option is to file April 15 and pay what you can with the return. They will start collections but usually won't get too aggressive as long as you keep whittling away at the debt every time they send you a new bill. This usually works if you can pay it off in a few months. Interest rate on underpayment is 0.5% per month after Apr 15 plus about 4% /yr.

5) File an extension. Be sure to disclose what you owe on the extension, and pay as much as you can. They won't start collections at all until you actually file the return which won't be due until Oct 15. Interest rate is similar to option 4 above.

6) Do you already have a car loan on your MS? If not, get one. Auto loan interest rates are shockingly low.

7) Other options are available but don't know what will work without more specific info about your situation.
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thanks HCSharp...one quick question...if I own a 145 Jan 2015 LEAP call option I bought in July of last year for $20 and right now decide to sell 250 Jan 2015 calls against it for $50 then:
a)I assume the initial $50 is taxed as income
but
b)if the stock ends up being 295 on December 29th this year and I close both LEAPs out then at the same time:
1)I really only pay short term tax (ie. income tax) on approximately $5 if I bought back the 250 LEAP at $45 on Dec 29th
2)and I would pay long term gains taxes on $130 if I sell the 145 LEAP at 150 (295 - 145strike - $20 cost basis)

in my hypothetical scenario, Is this all correct to your best judgement?
I know I need to consult a tax advisor as well to confirm but just wanted your opinion or anyone else who is experienced with taxes and options
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TSLAopt said: ?

thanks HCSharp...one quick question...if I own a 145 Jan 2015 LEAP call option I bought in July of last year for $20 and right now decide to sell 250 Jan 2015 calls against it for $50 then:
a)I assume the initial $50 is taxed as income
but
b)if the stock ends up being 295 on December 29th this year and I close both LEAPs out then at the same time:
1)I really only pay short term tax (ie. income tax) on approximately $5 if I bought back the 250 LEAP at $45 on Dec 29th
2)and I would pay long term gains taxes on $130 if I sell the 145 LEAP at 150 (295 - 145strike - $20 cost basis)

in my hypothetical scenario, Is this all correct to your best judgement?
I know I need to consult a tax advisor as well to confirm but just wanted your opinion or anyone else who is experienced with taxes and options
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Unfortunately, I think this is not correct. By selling calls against LEAPS, you are entering into a straddle position; note that the IRS regulations on straddles are very broad and encompass almost any situation in which one position is offset against another. By entering into a straddle while you are still in the short-term period for the existing LEAPS, you would be resetting their holding period and they would be classified as short-term gain if sold by the end of the year (or within one year from buying back the LEAPS that you are thinking of selling).

Note that it would be possible to get around that by selling the calls against stock and not LEAPS - then you could sell so-called qualified covered calls, but there are restrictions on those, including when they can expire (at least 30 days, but no more than one year). You could alternatively form an `identified straddle' with other positions that you are thinking of holding for the longer term, but you should look at the regulations and requirements for that in advance. In particular, one requirement is that an identified straddle must be clearly noted in your records on the day that you establish it.

Update: I should also mention that a straddle comes with additional tax reporting obligations requiring some of the transactions to be reported on form 6781 instead of the usual 8949. If you do any other Tesla trades near the same time, trying to coordinate the straddle rules and wash sales rules can turn into a nightmare, as I have recently discovered...
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tentonine said: ?

Unfortunately, I think this is not correct. By selling calls against LEAPS, you are entering into a straddle position; note that the IRS regulations on straddles are very broad and encompass almost any situation in which one position is offset against another. By entering into a straddle while you are still in the short-term period for the existing LEAPS, you would be resetting their holding period and they would be classified as short-term gain if sold by the end of the year (or within one year from buying back the LEAPS that you are thinking of selling).

Note that it would be possible to get around that by selling the calls against stock and not LEAPS - then you could sell so-called qualified covered calls, but there are restrictions on those, including when they can expire (at least 30 days, but no more than one year). You could alternatively form an `identified straddle' with other positions that you are thinking of holding for the longer term, but you should look at the regulations and requirements for that in advance. In particular, one requirement is that an identified straddle must be clearly noted in your records on the day that you establish it.

Update: I should also mention that a straddle comes with additional tax reporting obligations requiring some of the transactions to be reported on form 6781 instead of the usual 8949. If you do any other Tesla trades near the same time, trying to coordinate the straddle rules and wash sales rules can turn into a nightmare, as I have recently discovered...
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Thanks for the news which is not so great for me as it limits my TSLA choices to generate cash...

now suppose I had 2015 FB LEAPs I bought last July and I was planning to sell them this July to get my long term gains tax. however, I just recently sold FB 90 calls on this position for extra cash...am I screwed now out of my plan to sell the FB LEAPs this summer at a long term capital gains rate?
what if I buy back the covered 90 calls first (at a loss)? Or would a new 1 year waiting period start then?...in which case I'd be screwed bc the LEAPs expire less than a year from now...I'm thinking my only options would be to get assigned (or exercise) the LEAPs then hold the shares for over a year from that point....is that my only way out now of avoiding short term gains tax on the FB 2015 LEAP gains?
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TSLAopt said: ?

Thanks for the news which is not so great for me as it limits my TSLA choices to generate cash...

now suppose I had 2015 FB LEAPs I bought last July and I was planning to sell them this July to get my long term gains tax. however, I just recently sold FB 90 calls on this position for extra cash...am I screwed now out of my plan to sell the FB LEAPs this summer at a long term capital gains rate?
what if I buy back the covered 90 calls first (at a loss)? Or would a new 1 year waiting period start then?...in which case I'd be screwed bc the LEAPs expire less than a year from now...I'm thinking my only options would be to get assigned (or exercise) the LEAPs then hold the shares for over a year from that point....is that my only way out now of avoiding short term gains tax on the FB 2015 LEAP gains?
Click to expand...

I'm afraid I think that's probably correct, unless you also had enough FB stock when you sold the calls and those calls otherwise satisfy the requirements for qualified covered calls (i.e. at least 30 days, no more than 1 year, and other stuff).

Another thing worth pointing out: your broker won't flag straddles for you on the forms that you receive after the end of the tax year. You have to manually look at your records to identify them and might need to point them out to the accountant.
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tentonine said: ?

I'm afraid I think that's probably correct, unless you also had enough FB stock when you sold the calls and those calls otherwise satisfy the requirements for qualified covered calls (i.e. at least 30 days, no more than 1 year, and other stuff).

Another thing worth pointing out: your broker won't flag straddles for you on the forms that you receive after the end of the tax year. You have to manually look at your records to identify them and might need to point them out to the accountant.
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ok, and the danger if I pretend I never read this and don't point them out when I do my taxes is if/when I get audited one day I'll have to pay it then with interest I guess, right?
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TSLAopt said: ?

ok, and the danger if I pretend I never read this and don't point them out when I do my taxes is if/when I get audited one day I'll have to pay it then with interest I guess, right?
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I guess probably penalties too, if it's a lot of money.

Somebody else can probably give better comments on the chances of being caught. I personally like to be as conservative as possible about this kind of thing though - makes it easier to sleep!
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This is a bit late for a recommendation, but if you're in the US and have a Roth IRA... well, I put pretty much all my Roth IRA money (which wasn't much) into TSLA. Result is that the gains will not be taxed at all, unless tax law changes. Roth IRAs are a very good vehicle for buying speculative stocks which might go up a lot.

Regarding straddles, I very carefully made sure that all my positions were bullish so as to avoid straddling.

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sleepyhead said: ?

To keep it simple (in reality taxes are more complicated): if you have $20k in other income, then you can realize up to $52.5k of L-T Cap gains that year and pay 0% on the L-T Cap gains.
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Don't assume that this tax break will stay around. It's sufficiently egregious that it'll probably be repealed sooner or later. I've been taking full advantage of it every year -- when I haven't reached the limit of the 0% bracket, I sell stock and buy it back to realize LT capital gains up to the limit. (Remember, wash sale *losses* can't be deducted, but wash sale *gains* must be reported and taxed in the year they are incurred... which is great if the tax rate is 0%.)

I don't expect this tax break to last forever; eventually Congress will see sense and get rid of it.

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ckessel said: ?

Just an FYI, I had penalties owed due to not paying estimated taxes on my TSLA sales in 2013. I'd somehow had the impression that since I could have offsetting losses as the year went on that it wasn't a problem to just pay it all on April 15th when the books were worked out.

On the other hand, the penalties were fairly small.
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The estimated tax rules are pretty complicated. I've tripped over them more than once, and now I safe-harbor every single year. (Which I realize is not optimal cash use.) Safe harbor means you pay the previous year's tax in estimated + withholding (or 110% of the previous year's if your income was higher than a certain amount).
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Does anyone else use optionshouse? They didn't generate a 1099 for me and their website says it's not needed. I got one from TDameritrade and I had the same types of gains on both accounts.

I'm meeting our accountant next week and I printed all of my optionshouse statements to take with me because I am 99% sure I owe tax from our optionshouse account. It is not an ira.
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Theshadows said: ?

Does anyone else use optionshouse? They didn't generate a 1099 for me and their website says it's not needed. I got one from TDameritrade and I had the same types of gains on both accounts.

I'm meeting our accountant next week and I printed all of my optionshouse statements to take with me because I am 99% sure I owe tax from our optionshouse account. It is not an ira.
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Lots of types of income don't generate 1099s (or equivalent). I think options have very weak reporting requirements. It is your responsibility to pay the tax anyway, so yes, bring the statements with you.

I've had capital gain income which wasn't reported on 1099s. Usually from real estate or similar. But once or twice from stocks, even (due to corporate shenanigans -- ever had a return of capital?)
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neroden said: ?

... ever had a return of capital?)
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That's not capital gain income and not reportable on your tax return (unless it exceeds your basis, which is almost impossible). All you have to do is adjust your basis down by the amount of "Return of Capital." The brokerage usually does this automatically so you can ignore it.
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First off, I would like to thank everyone here for your collective knowledge and suggestions regarding trading strategies.

I had a lengthy meeting with our accountant today and my stock activity consumed more time than any other item we needed to discuss.

The first issue was that optionshouse does not generate 1099B's. I did not know what to do so I took all my statements in to him. He was not happy about having to sift through my trades to figure it out. (I discovered they have a tool and was able to generate the 8949 and a detailed position report for him. He told me I was his hero after I emailed these to him. )

What I am thankful to all of you for is because he said some of his customers trade options, however he has never in his entire career seen someone do as well as I did with options. He has been practicing for 30 years. My hat is off to all of you for this and we are greatly thankful.

He was glad to hear my strategy of setting 25% as side for a stock recovery program in the event if a market crash that would wipe me out. He suggested instead of just saving it to pay off our house as quickly as possible with it and get a HELOC for the entire value of our house so I can access it quickly if needed.

He also said to make sure I call him as soon as we clear $400k so we can start looking at some other tax strategies. I chuckled and told him that I hope I have to make that phone call.

A question he could not answer off the top of his head that someone here may know the answer to. I have a simple ira that I can fund with $12k, can I create a traditional or a Roth to fund in addition to this one in the same tax year?

Also does anyone know why he recommended we fund a Roth for our teenage child that is working? We are going to create iras for all our children when they start working but I was wondering why a Roth.

Thanks again everyone for everything.
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In a roth, you put taxed money into the account. The amount that it grows, which would normally be capital gains, is not taxed. This is better if you are not at your maximal earning potential and you have many years for it to grow.

In a traditional, you take money that is from your normal income and put it into the traditional ira. You are not taxed on that amount, but you are taxed normally when you take it out. This allows you to delay when you pay the taxes, with the assumption that you are investing in the traditional IRA at the peak of your earnings (like 35% tax bracket) but would be taking the money out when you are in retirement (15-20% tax bracket). You are taxed on the entire amount of the withdrawal, so that includes any growth in the account.

If you earn big bucks and are less than 5 or 10 years from retirement, invest in the traditional. If you earn small bucks and have 30 years before retirement, pay your taxes upfront because you will be in the 0 or 15% tax bracket on the initial amount, and invest in the roth and you won't be taxed on any of that growth.
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Theshadows said: ?

A question he could not answer off the top of his head that someone here may know the answer to. I have a simple ira that I can fund with $12k, can I create a traditional or a Roth to fund in addition to this one in the same tax year?
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No. Well, OK, it depends on your income, and your spouse's income and whether he/she is covered by a retirement plan at work (a SIMPLE is considered a qualified retirement plan).

Theshadows said: ?

Also does anyone know why he recommended we fund a Roth for our teenage child that is working? We are going to create iras for all our children when they start working but I was wondering why a Roth.
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Probably because your teenager made less than $6,000? The benefit of a traditional IRA is the current tax deduction but if he didn't have taxable income then there's no point. Better off with a Roth in that case.
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Does anyone have a spreadsheet they are really proud of for their stocks and options trades? I was thinking of making one for the purpose of checking for tax purposes, but also some analysis like which moves were profitable (and how much) and if I would have been better buying and holding

I can make one myself but I figured someone might have already have a fancy one they have been using for a few years that has the bugs worked out.
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Does anyone know or have created a company dedicated to trade stocks? The idea is to get advantage of deductions you get for setting up a company while not being a Trader in IRS terms.
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pGo said: ?

Does anyone know or have created a company dedicated to trade stocks? The idea is to get advantage of deductions you get for setting up a company while not being a Trader in IRS terms.
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Are you thinking of using the carried interest tax break? Because quite a bunch of people have indeed created companies to do just that.
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FluxCap said: ?

Are you thinking of using the carried interest tax break? Because quite a bunch of people have indeed created companies to do just that.
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I am not sure what carried interest tax break is. If you can elaborate further, that will be great. Thanks.

My problem is that a lot of the gains I have are short term while I am not a trader in IRS terms (requires more than 500 trades, a day-trader). Would a company only trading be able to get advantage of deductions against the short term income?
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i didn't think there was a limit on the number of trades to be a trader in IRS terms. I thought you just have to file the paperwork ahead of time, not retroactively.
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pGo said: ?

I am not sure what carried interest tax break is. If you can elaborate further, that will be great. Thanks.

My problem is that a lot of the gains I have are short term while I am not a trader in IRS terms (requires more than 500 trades, a day-trader). Would a company only trading be able to get advantage of deductions against the short term income?
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Well it doesn't seem like you are, but here's more info in case you want to read up.
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hcsharp said: ?

That's not capital gain income and not reportable on your tax return (unless it exceeds your basis, which is almost impossible).
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Yes, it exceeded our basis, and that's quite easy to do if you have OLD holdings (20 years +).

Of course the stock was not with the same brokerage it was initially bought with, after that time. It was in certificate form.
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pGo said: ?

Does anyone know or have created a company dedicated to trade stocks? The idea is to get advantage of deductions you get for setting up a company while not being a Trader in IRS terms.
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Hi pGo
There are many ways that allow you to trade as a legal entity. Many people run funds as trustees. It is also possible to run a fund set up as a company. I used to run a fund, but due to some restrictions I wound up a fund and rolled it into a company. Requirements for a fund and a company are quite similar. I am not sure of US laws, but there will be some similar requirements for running a company anywhere in the world. A company is a legal entity that must have a business number, tax file number and bank account, be registered as a business. Company must have all financial reports prepared and audited every year, and must lodge a tax return.

Set up costs and administrative running costs can be offset against the income (if you generate any), and your company's taxable income gets offset with costs. If you do not generate income, you will still have all the costs.

My company is established with a purpose to manage my retirement savings. It is relevant to distinguish contributions to such companies (funds) from income. Contributions is what I and my employer pay into my company (fund) every month as a saving towards my retirement. All such contributions are taxed at a tax rate which in Australia is 15%. If my fund generates income by trading, that income gets taxed at a different tax rate. For companies like mine, that run retirement saving funds, after I retire there will be no tax payable on income generated by the fund that pays out regular monthly payments. That is a huge incentive to put as much money as possible into retirements funds as one day all income that such funds generate will be tax free (in Australia). If I contribute more than $25000/year into that fund, tax penalties kik in to stop people from transferring their wealth into accounts that will be tax free when they retire.

If you are trading with your own personal money, then I do not see much benefit in setting up a company. If I am correct corporate tax rate in US is 15% and that is the rate your company would be paying if you decide to set it up. A company may get lower tax rate than your individual tax rate, but there is the cost and work involved in running the company. I have not set up a company for investing my personal money, although that account is larger than my retirement account, because I do not find benefit in doing so. This is very brief and simplified presentation of a complex matter, if you wish to set up and run a company you will need to spend some time on it and learn about it, and perhaps do some calculations to establish if that is worth doing. Regarding treatment of long term vs short term gains for tax purposes, in Australia company and individual trader get equal treatment. Only fund or company of retired person that is drawing pension out of the fund does get 0 tax on fund's income.

Here are some cost numbers for Australia. It is likely that these costs are lower in the US. Costs for running funds are slightly lower than for running the company.

Company set up costs: approx. $1000, can be done online - one off cost that can be offset against income, if you make any
Yearly fin. reports, audit and tax return: $1000 to $5000, can be also done online - yearly running cost, can also be offset against yearly income, if there is any.

Income: that is up to you

So if you decide to set up a company, you are guaranteed to incur one off set up and yearly running costs. I am not sure what US individual tax rates are, but they are lower than in Australia. Even with high Australian tax rates it is very difficult to justify setting up and running a company for small traders like myself, but do your own calculations.

Good luck:smile:

I forgot to mention an important aspect: If you set up a company, you have to define a way of transferring money in and out of the company. Both transactions are likely to attract some kind of tax. Example: Say your company generates income. You can choose to pay yourself a salary (which will be taxed) or if you run a fund you can be a beneficiary and get benefits, which might be taxed. You would need to find out what these tax rates are before doing any calculations. Tax regulation changes frequently so you need to keep on top of it.
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Thanks a bunch Auzie.
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Here's the situation I find myself in: I maxed out my contributions to my SEP-IRA last year, but recently realized I wasn't actually eligible to contribute anything at all last year because I was no longer self-employed. So I thought I would just pull out my excess contribution and that would be that - but I was informed that I also have to pull out any earnings that I made on the erroneous deposits. Since I pretty much put it all into TSLA, I am worried that I will have to take out, in addition to my erroneous deposit, another 100-200% (or more?) of that money in earnings and I will be paying crazy short-term capital gains tax now. I am not sure how they will calculate the earnings, though.

Does anyone have suggestions to minimize the tax burden? I am buying a house so in a way it's good to have cash, but I hate to be paying 33% on such a large sum of money.

Update:

Actually, it looks like I can just transfer shares over to meet the requirement. I am thinking I can just hold on to the shares until they are a year old, then I can sell them at long-term gain tax rates.
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MikeC said: ?

Here's the situation I find myself in: I maxed out my contributions to my SEP-IRA last year, but recently realized I wasn't actually eligible to contribute anything at all last year because I was no longer self-employed. So I thought I would just pull out my excess contribution and that would be that - but I was informed that I also have to pull out any earnings that I made on the erroneous deposits. Since I pretty much put it all into TSLA, I am worried that I will have to take out, in addition to my erroneous deposit, another 100-200% (or more?) of that money in earnings and I will be paying crazy short-term capital gains tax now. I am not sure how they will calculate the earnings, though.

Does anyone have suggestions to minimize the tax burden? I am buying a house so in a way it's good to have cash, but I hate to be paying 33% on such a large sum of money.

Update:

Actually, it looks like I can just transfer shares over to meet the requirement. I am thinking I can just hold on to the shares until they are a year old, then I can sell them at long-term gain tax rates.
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A great problem to have, glad to have it too. :biggrin:My head is spinning with all these winnings

Tax liability is relevant consideration and I have to keep calculating how much cap.gains tax my potential sale might attract, vs keeping the shares even if I expect a drop in price. Few times tax considerations stopped me from any sale.

It helps to spread the sale over number of financial years, to minimize tax. So it might be wise to take some profits every year. There is a risk in not taking profits, so many times I failed to sell at the peak and over held the shares. I just think that this one is not at its peak yet.
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MikeC said: ?

Here's the situation I find myself in: I maxed out my contributions to my SEP-IRA last year, but recently realized I wasn't actually eligible to contribute anything at all last year because I was no longer self-employed. So I thought I would just pull out my excess contribution and that would be that - but I was informed that I also have to pull out any earnings that I made on the erroneous deposits. Since I pretty much put it all into TSLA, I am worried that I will have to take out, in addition to my erroneous deposit, another 100-200% (or more?) of that money in earnings and I will be paying crazy short-term capital gains tax now. I am not sure how they will calculate the earnings, though.

Does anyone have suggestions to minimize the tax burden? I am buying a house so in a way it's good to have cash, but I hate to be paying 33% on such a large sum of money.

Update:

Actually, it looks like I can just transfer shares over to meet the requirement. I am thinking I can just hold on to the shares until they are a year old, then I can sell them at long-term gain tax rates.
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Don't forget that you can extend your return until Oct 15 which gives you until then to remove the excess contribution + earnings (that's only true of an SEP, not a traditional or Roth IRA). It may be long term by then but sadly I don't think it matters. I'm pretty sure it's still taxed as ordinary income.

I believe it's ordinary income whether they transfer the shares or sell them to return the excess contribution. It will help that the earnings are calculated as a percent of the entire SEP account. For example if your SEP was worth $200,000 before you contributed the TSLA excess-contribution of 20,000, then the 20k TSLA went up to 50k so the whole account is now worth 250k, you only have to pull out the original 20k plus 5k of the earnings in this example. Only the earnings will be taxable, but it is ordinary income regardless of whether you kept the stock long-term or not. In addition to ordinary income tax, you will also have to pay a 10% penalty on the earnings if you were not 59 1/2 by the end of 2013.

Another option is to leave it in there and pay the 6% excess contrib penalty per year. You can then generate some self employment income this year and future years to mop up the excess that is carried forward each year until it's gone. That will be a lot less tax than ordinary income plus 10% penalty. Hope this helps.
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I think this should cause some to scratch their heads - we'll see:

Proposition: IF a Model S original owner DID NOT take either the $7,500 rebate or any fraction thereof....

does that mean that a purchaser of the vehicle in the second-hand market might be able to do so? And if that's the case, what sort of paper trace must be followed in order to do so?

This is not an hypothetical question. For some very valid reasons, I did not take the rebate. Although I am not looking to sell, it would be extremely useful to know the answer.
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AudubonB said: ?

I think this should cause some to scratch their heads - we'll see:

Proposition: IF a Model S original owner DID NOT take either the $7,500 rebate or any fraction thereof....

does that mean that a purchaser of the vehicle in the second-hand market might be able to do so? And if that's the case, what sort of paper trace must be followed in order to do so?

This is not an hypothetical question. For some very valid reasons, I did not take the rebate. Although I am not looking to sell, it would be extremely useful to know the answer.
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The answer is not a head scratcher. The credit is only available to the buyer of a new car.
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hcsharp said: ?

Don't forget that you can extend your return until Oct 15 which gives you until then to remove the excess contribution + earnings (that's only true of an SEP, not a traditional or Roth IRA). It may be long term by then but sadly I don't think it matters. I'm pretty sure it's still taxed as ordinary income.

I believe it's ordinary income whether they transfer the shares or sell them to return the excess contribution. It will help that the earnings are calculated as a percent of the entire SEP account. For example if your SEP was worth $200,000 before you contributed the TSLA excess-contribution of 20,000, then the 20k TSLA went up to 50k so the whole account is now worth 250k, you only have to pull out the original 20k plus 5k of the earnings in this example. Only the earnings will be taxable, but it is ordinary income regardless of whether you kept the stock long-term or not. In addition to ordinary income tax, you will also have to pay a 10% penalty on the earnings if you were not 59 1/2 by the end of 2013.

Another option is to leave it in there and pay the 6% excess contrib penalty per year. You can then generate some self employment income this year and future years to mop up the excess that is carried forward each year until it's gone. That will be a lot less tax than ordinary income plus 10% penalty. Hope this helps.
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Thanks, I was hoping you might respond. I am confused why I would be taxed 10% as this is not a disbursement but a correction to an inappropriate deposit. It seems like as long as I withdraw the amount plus earnings before April 15, I shouldn't be penalized. I think it should be treated as if the initial deposit (and subsequent earnings) have been in my regular investment acct the whole time, but I'm not sure.
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MikeC said: ?

Thanks, I was hoping you might respond. I am confused why I would be taxed 10% as this is not a disbursement but a correction to an inappropriate deposit. It seems like as long as I withdraw the amount plus earnings before April 15, I shouldn't be penalized. I think it should be treated as if the initial deposit (and subsequent earnings) have been in my regular investment acct the whole time, but I'm not sure.
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Only the earnings are subject to the 10% additional tax. And only if you were not yet 59.5 years old in 2013. I don't know why they made it that way. Don't try to make sense of tax law. You'll just go crazy.
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hcsharp said: ?

Only the earnings are subject to the 10% additional tax. And only if you were not yet 59.5 years old in 2013. I don't know why they made it that way. Don't try to make sense of tax law. You'll just go crazy.
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So I'm going to be taxed 43%!? (33% bracket + 10%)
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MikeC said: ?

So I'm going to be taxed 43%!? (33% bracket + 10%)
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Ouch ouch ouch. I feel you pain. But look at the bright side, you have a vin number.:biggrin:
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MikeC said: ?

So I'm going to be taxed 43%!? (33% bracket + 10%)
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It's worse than that. You live in California! :tongue:
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Don't know if this has been discussed before, but I'm trying to figure out if taxes for creating a spread are different. For example, if I have a Jan 16 LEAP call $200 strike and I don't want to sell it b/c I'll have to pay short term taxes. Then if I sell a Jan 16 $250 call as protection and close that out when I think things have settled down, I should only be taxed for any profits in this trade correct? This shouldn't affect my $200 call.

I feel like I've seen somewhere that if you create a spread on a call then the 1 yr clock for long term capital gains resets.
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justdoit said: ?

I feel like I've seen somewhere that if you create a spread on a call then the 1 yr clock for long term capital gains resets.
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That is correct - the capital gain resets if the existing position is not already long term. One way around this is if you own sufficient stock, then selling qualified covered calls (expiring at least 30 days in the future, but no more than 1 year) against it is ok.
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How would the taxes be for taking early withdrawal from an ira? Would it always be considered short term or could it be considered long term? The reason I am asking is if it's always long term then the 10% tax penalty for early withdrawal could be better than paying short term gains depending on your tax bracket right?

For example, if you make 398k filing jointly your tax rate would be 33%. If you held your stocks in an ira and they are taxed at the long term rate you would have to pay 15%+10% tax penalty. Thus coming out ahead. Is this right?
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Theshadows said: ?

How would the taxes be for taking early withdrawal from an ira? Would it always be considered short term or could it be considered long term? The reason I am asking is if it's always long term then the 10% tax penalty for early withdrawal could be better than paying short term gains depending on your tax bracket right?

For example, if you make 398k filing jointly your tax rate would be 33%. If you held your stocks in an ira and they are taxed at the long term rate you would have to pay 15%+10% tax penalty. Thus coming out ahead. Is this right?
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Not sure that I understand your question, but I will give it a go as there seem to be no others interested in this relevant topic.

US regulations for IRA accounts are different from Australian regulations but I assume that the underlying guiding principles would be the same. The differences would be in details, like the level of tax rates for particular events.

In your statement 'if you make 398k filing jointly your tax rate would be 33%' I assume you mean that you hold the shares in a private account, jointly with your spouse. If that is correct, then the transfer of your shares from private to ira account would be considered contribution. Contributions are regulated by IRA. The cap in US seems to be very low,

$5,500 if you are age 49 or younger,

$6,500 if you are age 50 or older

In Australia, contribution cap is $25k/year for under 60yo. Any excess contributions to retirement account that exceeds $25k/y are taxed at the highest tax rate, approx. 45%, so it really makes little or no sense to make excess contributions.

If your shares are held in IRA account, it seems that you can defer paying tax. That is some advantage.

My main point is that it may be impossible or not cost effective to transfer shares from private to ira acount. You may be stuck with your gains. :smile:
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I think your traditional IRA will always be taxed as earnings (in this case 33%). Early withdrawal would be another 10%. Roth IRA earnings would be untaxed.
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teslamotorclub

Thứ Hai, 6 tháng 2, 2017

Tax questions, implications and strategies part 1

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