[Update after publication April 2018: While long-term capital gains are taxed at 0% for investors in the 10% and 15% tax bracket, many investors will still have to pay state income taxes on all capital gains. This significantly reduces any benefit of tax gain harvesting for investors who otherwise did not plan to sell their stock for many years. In my opinion, very few investors with long-term time horizons and a state income tax on capital gains would benefit from tax-gain harvesting. -WSP]
The standard advice for most investors, including nearly all attendings, is to take advantage of tax-loss harvesting opportunities. You harvest losses and take deductions at a high tax bracket, while any future gains are taxed at a lower long-term capital gains bracket. This is a key investment principle that should be in the toolbox of all physician investors. But could there be some scenarios where physicians should consider tax gain harvesting? Let me explain and give you a concrete example of this concept.
A Special Scenario for Some Medical Residents
Long-term capital gains tax rates are 0% for people in the 10% or 15% tax bracket. This will typically apply only to married medical residents with a non-working spouse. Because residents will (one day) become attendings and be at a much higher tax bracket, it makes sense to cash in on long-term capital gains when you are a resident (and are eligible for a 0% long-term capital gains rate), rather than wait until you are an attending to cash in your investment gains as a resident, and be taxed at 15% (or if you’re lucky / good enough to be in the 39.6% top tax bracket, 20%).
Tips for Tax Gain Harvesting
1. Make sure tax gain harvesting is beneficial
The most important thing is to make sure that tax gain harvesting is actually beneficial to you.
Most single residents will not benefit from tax gain harvesting, since your income is typically greater than approximately $48,300 (the 15% tax bracket ends at $37,950 for single taxpayers, plus the $6,350 standard deduction and $4,050 personal exemption).
Most married residents with a non-working spouse will qualify, since your income is typically less than approximately $96,700 (15% tax bracket ends at $75,900 if married filing jointly, plus the $12,700 standard deduction and $8,100 personal exemption).
Some married residents with working spouses will qualify if they make a combined income of less than approximately $100,000. Your taxable income is on line 43 of Form 1040, Line 27 of Form 1040A, or line 6 of Form 1040EZ. If this number is less than $75,900, then you may benefit from tax loss harvesting.
1a. Reconsider tax gain harvesting if you have a long investment horizon and live in a state with state income tax
While long-term capital gains are taxed at 0% for investors in the 10% and 15% tax brackets, they are often NOT exempt from state income taxes. That means you may have to pay a tax bill for stocks you sell for tax gain harvesting purposes. Losing the compound interest capabilities of that state income tax bill may exceed the benefits of paying less in federal long-term capital gains tax. If you were planning to hold the appreciated stock for many years, then I would not do tax gain harvesting if your state has a capital gains tax.
2. Tax gain harvest in the last year before your year of graduation
For married residents with a non-working spouse, you have a lot of room for tax gain harvesting. In this scenario, you should perform all of your tax gain harvesting in the final year before graduation. For example, if you are graduating in June 2018, you should harvest all of your gains in 2017, since this will be the last year you will be making a resident salary and can benefit from tax gain harvesting.
This is beneficial because if you just tax gain harvest every year during residency, you may lose opportunities to get valuable tax credits (see Saver’s credit below).
3. Make sure your total income stays under the limit for the Saver’s Credit in non-graduation years
In 2017, the income above which the Saver’s Credit is phased out is $62,000 for a married filing jointly couple. If you are harvesting gains, please be cognizant that you will lose a nice tax credit (worth $400 if both you and your spouse contribute at least $2,000 to a retirement account) if your capital gains causes your income to exceed the income limit for the Saver’s Credit.
4. Consider tax loss harvesting in years that you do not tax gain harvest
In years that you do not tax-gain harvest, you should consider the standard advice of tax loss harvesting. For example, if you are graduating in 2019, and you have $4,000 in losses and $10,000 in long-term capital gains, one approach would be to take the $4,000 in losses in 2017 and the $10,000 in long-term capital gains in 2018. You will be able to deduct $4,000 on your 2017 taxes (netting you a $600 gain).
As you’ll see in the example below, the optimal scenario would be to harvest the losses in your first full-year as an attending, so that you can deduct your losses at the highest marginal tax rate. The problem is that those $4,000 in losses may reverse itself and become capital gains by the time you become an attending (a very good problem to have!).
5. Make sure your income does not exceed the 15% tax bracket
Remember that you can only tax gain harvest money up to the upper threshold of the 15% tax bracket (in 2017, $37,950 for single residents and $75,900 for married residents). Remember that your tax rate is based on your taxable income, which is calculated after the standard deduction, personal exemption, or itemized deductions are taken from your adjusted gross income.
6. Make sure you are only using long-term capital gains
Remember that only long-term capital gains receive the discounted tax rate for low-income investors. If you generate short-term capital gains (buy and sell the stock within 1 year), this will be taxed as ordinary income regardless of your tax bracket. Tax gain harvesting is for long-term capital gains only.
Putting it all together: an example
Consider a married resident / stay-at-home spouse couple with two kids who will earn $50,000 as a resident in 2017. The resident will graduate in June 2019. They have $4,000 in unrealized losses and $15,000 in unrealized long-term capital gains. Importantly, they live in a state with no state income tax. Here are five possible scenarios:
1. Tax loss harvest in 2017, tax gain harvest in 2018
The resident would take the $4,000 in losses in 2017, earning a 15% tax deduction on the losses, or $600. The resident would then take the $15,000 in gains in 2018, but would not have to pay any taxes, because he remains in the 15% tax bracket. The total taxes is a $600 gain.
2. Sell all stocks (both losses and gains) in 2018
The resident would take both the $4,000 in losses and $15,000 in gains in 2018. This would net out as $11,000 in capital gains for 2018, which the resident would not have to pay any taxes. The total taxes is $0.
3. Tax Loss harvest in 2019, tax gain harvest in 2020.
The resident (now attending) would take the $4,000 in losses in 2019. Now that he is an attending and paying attending-level taxes, he would be able to take a larger 33% tax deduction on the losses, or $1,333. The attending would then take the $15,000 in gains in 2020, but would have to pay a long-term capital gains of 15%, or $1,650. This leads to a net loss of $317.
4. Sell all stocks in 2019 or beyond
This is the worst scenario. The resident (now attending) would take both the $4,000 in losses and $15,000 in gains in the same year as an attending. This would net out as $11,000 in capital gains, for which the now-attending would have to pay a long-term capital gains of 15%, or a $1,650 loss.
5. Tax gain harvest in 2018, tax loss harvest in 2020.
This is the optimal scenario. The resident would then take the $15,000 in gains in 2018, but would not have to pay any taxes, because he remains in the 15% tax bracket. The resident would then take the $4,000 in losses in 2020 in his first full year as a new attending, earning a 33% tax deduction on the losses, or $1333. The total taxes is a $1,333 gain.
By optimally selling their stocks to take advantage of tax loss harvesting and tax gain harvesting, the resident in scenario 5 who tax gain harvested in the year before graduation and tax loss harvested in his first full year as an attending was able to save $2,983 in taxes compared to the resident in Scenario 4 who sold all of his shares as an attending.
For the medical resident who qualifies (and it turns out that few residents with long-term investment horizons do), tax gain harvesting can be a way to save some money on taxes. Did you use tax gain harvesting when you were a resident?
Welcome to the blogging community. Can’t wait to hear more from you.
Thanks for the kind words. I hope to keep on writing so long as people are interested in reading my work.
HIRE A CERTIFIED AND GUARANTEED CRYPTO RECOVERY AND PHONE SPYING EXPERT AT REMOTESPYTECH
Finding out that your husband or wife has been unfaithful isn’t just a time of profound heartbreak and shock, it’s also a time of intense confusion . At certain points desperate measures are our only resort and we take them, finding a trustworthy infiltrator can be a lifeline and I sure used one to save my relationship, business and sanity. I was having real life problems when my friend recommended Zion to me. I contacted him because my business partner was shaking me, stealing money from the business. Also my spouse was always up at odd hours clearly this is a sign that my spouse is cheating, so the hacker cloned/hacked into their devices and granted me total access to their devices without their knowledge. I was overwhelmed that I could see my business partner hidden finances that were off records and read their old and new text messages, see new and deleted pictures, emails, call logs, Facebook, messenger, WhatsApp, Snapchat, GPS location in real time among other things off my spouse phone. If you require the services of a private investigator (EC council certified personnel), you can speak to Zion at Remotespytech(@) Gmail, com . You will be glad you did. For the purpose getting him comfortable working with you, it is advisable you make reference to this post as it would save you a lot of back and forth while ensuring you are not some kid playing around. I do hope this helps.
Email: REMOTESPYTECH@GMAIL.COM
WhatsApp: +1 (352) 870-0844
They can help you recover lost or stolen bitcoins and funds in one swipe. He assisted my friend recover his stolen $155,000 savings from a faux forex broker.
He can help you repair your bad credit, secure a good loan for you and upgrade your credit scores.
Send your complaint to this great team now!!!
Real deal
My name is Tom Peacock from USA, I want to say thank you to Dr Emu for the good thing he has done for me, Though am not sure if this is the best forum to show my joy and happiness for what he has done for me but i can’t hide my happiness and my joy so i have to share it with people, my marriage got crashed about two years ago and i tried all i could within my power but to no avail. I saw a post and testimonial about the good things Dr Emu has been doing so I decided to give it a try. though he is always a busy man but when he responded back to my email, he gave me 48 hours for my marriage to be restored really just like he said my marriage was restored since then I am happy and i am living happily i am so grateful to Dr Emu you can always email him here: {emutemple@gmail.com} or WhatsApp: {+2347012841542}
I want Coder Cyber Services to know how appreciative I am, a trustworthy hacker who accompanied me in getting back the USD 105,000 I had lost to online fraudulent perpetrators. I came across this investment platform online and made the decision to invest $105,000 in it with the hope that it would increase in value. Despite making a variety of attempts to contact the platform because their contact information was no longer available, I was never able to get my money back, neither capital nor profit. To great online evaluations, I learned about Coder Cyber Services, and I contacted them right away. With the use of their cutting-edge hacking technology, Coder Cyber Services assisted in recovering my lost USD105,000. In view of the fact that I can’t express my appreciation to Coder Cyber Services abundantly, I will only be able to leave them an excellent evaluation. Anyone with similar problems should contact them via: Codercyberservices@execs.com or +1 (403) 407-3407.
The best tech expert to assist you in recovering your lost money and keeping an eye on your binary investing strategy are SPYHOSTcyberservice. It’s possible that a fake person or an unlicensed cryptocurrency broker has already conned you. People who fall victim to such scams frequently overlook the possibility of receiving help in recouping the stolen funds. It is actually possible for victims of cryptocurrency fraud to recoup their losses. I experienced a similar issue and, thanks to a tip, I came across Spyhost@cyberdude(.)com.., a company that assisted me in getting back my lost Bitcoins of $432,340. SPYHOST are the real deal in Cryptocurrency recovery and you can as well reach out them if need be for help through their email at Spyhost@cyberdude(.) com
I was in total dismay when I lost my entire savings investing in cryptocurrency, I was contacted online by a lady through email pretending to be an account manager of a bank, who told me I could make double my savings through cryptocurrency investment, I never imagined it would be a scam and I was going to lose everything. It went on for weeks until I realized that I have been scammed. All hope was lost, I was devastated and broke, fortunately for me, I came across an article on my local bulletin about Elite Wizard Bitcoin Recovery, I contacted them and provided all the information regarding my case, I was amazed at how quickly they recovered my cryptocurrency funds and was able to trace down those scammers. I’m truly grateful for their service and I recommend them to everyone who needs to recover their funds urge you to contact them if you have lost your bitcoin USDT or ETH through bitcoin investment
Email: eliterecovery247@cyber-wizard.com
Phone: +1 (740) 688-0116
I’m one of those few people who invested in the cryptocurrency market and was hoping to make enough profits after my retirement. Unfortunately, I had invested in a platform that was out to steal from me, I lost around $275,000 to this platform excluding the promised profits. I had lost every penny I invested into it including the money I had to borrow from friends. I thought it was all over until I came across a Cryptocurrency recovery expert, Elite Wizard Bitcoin Recovery, who helped me recover my money from these fake investors. It took Elite Wizard Bitcoin Recovery 48 hours to recover my money and I was able to track down these people. I’m truly grateful for their service and I highly recommend them to anyone with the same problem.
Email: eliterecovery247@cyber-wizard.com
Call/WhatsApp +1 (805) -386-9670
Best Bitcoin Recovery Expert ( Experienced Hackers Services)
Have you lost hope of ever recovering your money from scam brokers? I have good news for you and yes it is 97% possible for you to recover your money through binary cash refund (BCRF)but to do this you need an expert, I lost over 76,000$ to fake broker and I lost hope of ever making profit through binary trading until I met an awesome recovery Hacker known as cybermaster who introduced me to (Experienced Hackers Services) And to recover any lost money to any Cryptocurrency i was able to recover my money and with an amazing recovery Hacker guidance I have been able to make profits after recovering my lost funds. l recommend anyone to Email (experiencedhackers @gmail. com)
ARE YOU A VICTIM OF INVESTMENT OR NFT SCAM? DO YOU WANT TO INVESTIGATE A CHEATING SPOUSE? DO YOU DESIRE CREDIT REPAIR (ALL BUREAUS)? SCHEDULE A MEETING WITH AN ETHICAL HACKER ASAP TO GET STARTED.
Let us show you the art of Ethical Hacking….!
EMERALD HACKS is a financial regulator, PRIVATE investigation and funds recovery body. We specialize in cases as regards ETHICAL HACKING, CRYPTOCURRENCY, FAKE INVESTMENT SCHEMES and RECOVERY SCAM. We are also experts in CREDIT REPAIR, we analyze what’s impacting your score.
All software tools needed to execute RECOVERIES from start to finish are available in stock.
Kindly NOTE that the available tools does NOT apply to CREDIT FIX.
Be ALERT to FALSE reviews and testimonies on the internet, the authors and perpetrators unite to form a syndicate.
Contact our team as soon as you can via the email address below to book a mail meeting with an ethical hacker.
emeraldhacks(.)org@gmail(.)com
Stay Safe out there !///-
I’m very excited to speak about Experienced Hackers Services, this cyber security company was able to assist me in recovering my stolen digital funds and cryptocurrency. I’m truly amazed by their excellent service and professional work. I never thought I could get back my funds until I approached them with my problems and provided all the necessary information. It took them 72 hours to recover my funds and I was amazed. Without any doubt, I highly recommend Experienced Hackers Services for all your cryptocurrency recovery, digital funds recovery, hacking, and cybersecurity-related issues.
Email: experiencedhackers @ gmail .com
A big thanks to google search, for a lot has been saved by the google team for providing more solutions to online scammers.m
There are expert agents from google, they are capable of recovering any lost funds via bank transfer, online trade scams.
Wild Hackers are from google to help victims recover their lost funds. If you have ever lost money or have any relative that has fallen into a cryptocurrency trading scam, reach out now to Wild Hackers and they will help you with just a little payback.
This is their email (wildhacker16@gmail.com)
Best wishes.
If you’ve fallen victim to a cryptocurrency scam, there’s hope for recovery with Wizard Asset Recovery. Contrary to common belief that once funds are transferred from a centralized exchange to a decentralized one or private wallet they’re lost forever, companies like Wizard Asset Recovery specialize in retrieving stolen crypto.
Their experienced team of cyber experts meticulously reviews the details of your case and analyzes the scam’s circumstances. This enables them to swiftly take action on your recovery case, ensuring a positive outcome and the return of your funds.
If you’ve been scammed by bitcoin or any fraudulent investment company, don’t despair. Reach out to Wizard Asset Recovery for assistance in recovering your lost funds. Visit their website or contact them via email at Wizardassetrecovery@gmx.us and WhatsApp at +13157561228.
HIRE A CERTIFIED CRYPTO RECOVERY EXPERT // LOST RECOVERY MASTERS ARE REPUTABLE
Most frequently asked question by investors after losing Bitcoins to fraudsters is how possible it is to recover the digital asset. I happened to become a scam victim last summer. I became interested in Cryptocurrency trading last summer and decided to trade $425,000 worth of crypto through an online software company which promised huge returns. This all went wrong after they transferred all my funds from my coin base wallet to an unknown wallet address. I immediately had a search out on a reliable option to recover the funds back. I came across Lost Recovery Masters, a specialized group in Cryptocurrency Recovery services. I must say I have good fortune, all my lost funds have been recovered back all thanks to these experts. To any victim who has lost Crypto to fraudsters learn more on restoring back your funds Visit their website and Learn more:
Website: https://lostrecoverymasters.wixsite.com/recoverbitcoin2024
Whatsapp (+44(7537)-105921)
Support Email (Support@lostrecoverymasters.com)
BITCOIN
I have a strong interest in this subject due to my prior experiences, which have increased my understanding of it. Had I had this information earlier, I would not have fallen victim to scams to the extent that I did, in my quest to earn enough money to retire early, I lost a lot of money to several investing platforms. I was clueless about how to restart after losing everything. Fortunately, I was directed to DECODE HACKERS, A Legitimate DIGITAL ASSETS RECOVERY AGENT by a friend. I was able to contact Him at: decodehackers@gmail.com, and they helped me recover my lost $310,000 worth of bitcoin and introduced me to reliable investment platforms that are currently helping me realize my ambition of retiring early. Given how crucial this is, I hope it will assist someone who needs such information, you can reach out to them by emailing: decodehackers@gmail.com