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Clean Up Your Stock Portfolio

Updated: Feb 1, 2023

Anybody can own some stocks. In fact, I encourage everybody to get into the stock market. A simple concept called “dollar cost averaging” means that you commit to buying into the stock market (via an S&P 500 Index Fund?) at some fixed amount every month, no matter what the market is doing. $5? $25? $100?

Some things to consider if you hold individual stocks instead of shares in an index fund. Looking at your portfolio, is it time to sell off some poor performers? Remember, when you sell at a loss, you only get to deduct $3,000 a year in capital losses. The rest are carried forward to future years. Best to offset some capital gains with capital losses. Thus, perhaps you also have some high performers in your portfolio that it’s time to sell since they may have hit their high point.

Capital gains tax is not that simple to compute. Perhaps you’ve heard “Capital Gains tax is 20%?” Well, that is not exactly right. If your income is low enough, your capital gains tax rate could be as low as 0%. For many folks, the capital gains rate is 15%. AND, the “maximum” capital gains rate of 20% is not exactly correct because usually when you hit that rate, you probably also have the “Net Investment Income Tax” (from Obamacare) of 3.8%, thus making your top capital gains tax rate of 23.8%. Now there are rumors running around that Congress wants to raise the capital gains rate. Actually, they are talking about raising that top rate of 23.8% up to about 28.8% … only for the “rich.” (If you make $400,000 a year or more, you are “rich.”) BTW, Congress is planning on making this tax hike retroactive to September 13, 2021. So, too late to sell something before the capital gains tax hike.

Let me give you an example of how the capital gains tax is computed. Be prepared, it may seem a bit confusing, so hold on.

If taxable income including long-term gains and/or dividends does not exceed $40,000 on single returns…$54,100 for heads of household and $80,800 for joint filers…then your qualified dividends and profits on sales of assets owned more than a year are taxed at 0% until they push you over those threshold amounts. Suppose you had $10,000 in qualified dividend income and you file as married. Your other income comes to $65,000. All $10,000 of your qualified dividends are taxed at 0%. But wait, let’s say that married couple has $78,000 of other taxable income. Now $2,800 ($80,800 - $78,000 = $2,800) of the $10,000 of qualified dividends gets the 0% tax rate, the rest ($7,200) is now taxed at a capital gains rate of 15%.

Now wasn’t that easy? And folks wonder why the average tax preparer develops nervous tics over time.

Did you hear? Prov 12:1a says, “Whoever loves instruction loves knowledge…”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at Also on Facebook.

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