by This post is only applicable to people earning to give in the US. It's not super-important, but it's interesting and could be marginally useful.
In 2013, the long-term capital-gains tax rate will be 15% for people in the 25% income bracket but 0% for those in the 15% income bracket or below.
This suggests the following idea: If, for another reason, it makes sense for you to take at least a year off from your job (e.g., as a sabbatical to do direct altruism work, to go back to school, etc.), then you should consider selling all of your long-term capital gains during that year and then buying back new stocks / mutual funds at a higher cost basis. This way you avoid ever having to pay tax on the accumulated capital gains even if you later return to a higher-paying job.
If you have, say, $25K in accumulated capital gains, then not paying 15% tax is worth $3,750. If you wouldn't have paid this tax amount until many years down the road, then the savings should be time discounted, in which case the actual savings could be several times smaller. The main cost is a tiny bit of effort for you to sell the securities and buy them back, plus some trading fees (but these are probably at most ~$100-$400). Obviously, the savings aren't enough that this should tip your decision about whether to take a year off from work, but if you happen to be doing that anyway, you might want to avail yourself of the opportunity.
Note that you probably shouldn't sell your short-term capital gains, because those are taxed as ordinary income. If you're in the 15% bracket during the year off, you'd pay 15% on them, which is the same amount you'd have to pay in capital gains if you were earning more, but you have to pay it sooner, which is bad from a time-value-of-money standpoint. If you're in the 10% income bracket during the year off, it could be good to sell the short-term securities, but (a) if you stay in the 10% income bracket next year too, you should wait until next year and sell them as long-term gains, and (b) if you plan to hold onto the stocks for a least ~5 years, paying 15% capital-gains tax later isn't as bad as paying 10% now.
Finally, keep in mind that stocks donated to registered charities don't incur capital-gains tax anyway, so concerns about avoiding capital-gains tax only matter if you plan to use the money for non-deductible projects.
See also: "Advice for Donors with Capital Gains"
In 2013, the long-term capital-gains tax rate will be 15% for people in the 25% income bracket but 0% for those in the 15% income bracket or below.
This suggests the following idea: If, for another reason, it makes sense for you to take at least a year off from your job (e.g., as a sabbatical to do direct altruism work, to go back to school, etc.), then you should consider selling all of your long-term capital gains during that year and then buying back new stocks / mutual funds at a higher cost basis. This way you avoid ever having to pay tax on the accumulated capital gains even if you later return to a higher-paying job.
If you have, say, $25K in accumulated capital gains, then not paying 15% tax is worth $3,750. If you wouldn't have paid this tax amount until many years down the road, then the savings should be time discounted, in which case the actual savings could be several times smaller. The main cost is a tiny bit of effort for you to sell the securities and buy them back, plus some trading fees (but these are probably at most ~$100-$400). Obviously, the savings aren't enough that this should tip your decision about whether to take a year off from work, but if you happen to be doing that anyway, you might want to avail yourself of the opportunity.
Note that you probably shouldn't sell your short-term capital gains, because those are taxed as ordinary income. If you're in the 15% bracket during the year off, you'd pay 15% on them, which is the same amount you'd have to pay in capital gains if you were earning more, but you have to pay it sooner, which is bad from a time-value-of-money standpoint. If you're in the 10% income bracket during the year off, it could be good to sell the short-term securities, but (a) if you stay in the 10% income bracket next year too, you should wait until next year and sell them as long-term gains, and (b) if you plan to hold onto the stocks for a least ~5 years, paying 15% capital-gains tax later isn't as bad as paying 10% now.
Finally, keep in mind that stocks donated to registered charities don't incur capital-gains tax anyway, so concerns about avoiding capital-gains tax only matter if you plan to use the money for non-deductible projects.
See also: "Advice for Donors with Capital Gains"
This post is only applicable to people earning to give in the US. It's not super-important, but it's interesting and could be marginally useful.
In 2013, the long-term capital-gains tax rate will be 15% for people in the 25% income bracket but 0% for those in the 15% income bracket or below.
This suggests the following idea: If, for another reason, it makes sense for you to take at least a year off from your job (e.g., as a sabbatical to do direct altruism work, to go back to school, etc.), then you should consider selling all of your long-term capital gains during that year and then buying back new stocks / mutual funds at a higher cost basis. This way you avoid ever having to pay tax on the accumulated capital gains even if you later return to a higher-paying job.
If you have, say, $25K in accumulated capital gains, then not paying 15% tax is worth $3,750. If you wouldn't have paid this tax amount until many years down the road, then the savings should be time discounted, in which case the actual savings could be several times smaller. The main cost is a tiny bit of effort for you to sell the securities and buy them back, plus some trading fees (but these are probably at most ~$100-$400). Obviously, the savings aren't enough that this should tip your decision about whether to take a year off from work, but if you happen to be doing that anyway, you might want to avail yourself of the opportunity.
Note that you probably shouldn't sell your short-term capital gains, because those are taxed as ordinary income. If you're in the 15% bracket during the year off, you'd pay 15% on them, which is the same amount you'd have to pay in capital gains if you were earning more, but you have to pay it sooner, which is bad from a time-value-of-money standpoint. If you're in the 10% income bracket during the year off, it could be good to sell the short-term securities, but (a) if you stay in the 10% income bracket next year too, you should wait until next year and sell them as long-term gains, and (b) if you plan to hold onto the stocks for a least ~5 years, paying 15% capital-gains tax later isn't as bad as paying 10% now.
If you live in a state that taxes capital gains more than the federal rates for your income bracket, this proposal may not work as well.
Finally, keep in mind that stocks donated to registered charities don't incur capital-gains tax anyway, so concerns about avoiding capital-gains tax only matter if you plan to use the money for non-deductible projects.
See also: "Advice for Donors with Capital Gains"
In 2013, the long-term capital-gains tax rate will be 15% for people in the 25% income bracket but 0% for those in the 15% income bracket or below.
This suggests the following idea: If, for another reason, it makes sense for you to take at least a year off from your job (e.g., as a sabbatical to do direct altruism work, to go back to school, etc.), then you should consider selling all of your long-term capital gains during that year and then buying back new stocks / mutual funds at a higher cost basis. This way you avoid ever having to pay tax on the accumulated capital gains even if you later return to a higher-paying job.
If you have, say, $25K in accumulated capital gains, then not paying 15% tax is worth $3,750. If you wouldn't have paid this tax amount until many years down the road, then the savings should be time discounted, in which case the actual savings could be several times smaller. The main cost is a tiny bit of effort for you to sell the securities and buy them back, plus some trading fees (but these are probably at most ~$100-$400). Obviously, the savings aren't enough that this should tip your decision about whether to take a year off from work, but if you happen to be doing that anyway, you might want to avail yourself of the opportunity.
Note that you probably shouldn't sell your short-term capital gains, because those are taxed as ordinary income. If you're in the 15% bracket during the year off, you'd pay 15% on them, which is the same amount you'd have to pay in capital gains if you were earning more, but you have to pay it sooner, which is bad from a time-value-of-money standpoint. If you're in the 10% income bracket during the year off, it could be good to sell the short-term securities, but (a) if you stay in the 10% income bracket next year too, you should wait until next year and sell them as long-term gains, and (b) if you plan to hold onto the stocks for a least ~5 years, paying 15% capital-gains tax later isn't as bad as paying 10% now.
If you live in a state that taxes capital gains more than the federal rates for your income bracket, this proposal may not work as well.
Finally, keep in mind that stocks donated to registered charities don't incur capital-gains tax anyway, so concerns about avoiding capital-gains tax only matter if you plan to use the money for non-deductible projects.
See also: "Advice for Donors with Capital Gains"
