Tax discussion, strategies and questions

[LN1_Casey]

so, first year selling shares and options and thus filing taxes on it the first time.

Turbotax yelled at me for my option loss, saying it was an invalid entry. Specifically, a covered call that I covered at a loss. It was my only loss, and it also popped the wash rule (so I can't use the loss to adjust my earnings), so I can't really look at other trades to show.

Turbotax asked for the amount in the 1d column of my 1099, and in my TDA 1099 it has a "-1191.32" amount in that box, showing my loss. TurboTax says the value of that box must be 0 or above (a positive number).

I'm assuming there is someone here who has covered a call at a loss before. Should I hit "ignore" and file it as the 1099 shows, or should I put a 0 in there since there were no "proceeds" and, as a wash, it doesn't count for me anyway?

 

[kengchang]

so, first year selling shares and options and thus filing taxes on it the first time.

Turbotax yelled at me for my option loss, saying it was an invalid entry. Specifically, a covered call that I covered at a loss. It was my only loss, and it also popped the wash rule (so I can't use the loss to adjust my earnings), so I can't really look at other trades to show.

Turbotax asked for the amount in the 1d column of my 1099, and in my TDA 1099 it has a "-1191.32" amount in that box, showing my loss. TurboTax says the value of that box must be 0 or above (a positive number).

I'm assuming there is someone here who has covered a call at a loss before. Should I hit "ignore" and file it as the 1099 shows, or should I put a 0 in there since there were no "proceeds" and, as a wash, it doesn't count for me anyway?

IRS only care about the aggregate, detail is for your own record keeping....just FYI

 

[bkp_duke]

so, first year selling shares and options and thus filing taxes on it the first time.

Turbotax yelled at me for my option loss, saying it was an invalid entry. Specifically, a covered call that I covered at a loss. It was my only loss, and it also popped the wash rule (so I can't use the loss to adjust my earnings), so I can't really look at other trades to show.

Turbotax asked for the amount in the 1d column of my 1099, and in my TDA 1099 it has a "-1191.32" amount in that box, showing my loss. TurboTax says the value of that box must be 0 or above (a positive number).

I'm assuming there is someone here who has covered a call at a loss before. Should I hit "ignore" and file it as the 1099 shows, or should I put a 0 in there since there were no "proceeds" and, as a wash, it doesn't count for me anyway?

My "not advice" advice - if you are getting to the point to trade options and make significant money, go find a good CPA (not HR Block, etc.). They are worth every penny you pay them and will return their investment many times over.

As a "game" I draft my own taxes each year before handing them over to the CPA, and without fail he always gets more savings than I do, even when I am learning from him and applying his tricks from years prior.

 

[abasile]

Question: I just got approval to WFH and I'm choosing Austin, TX as my official residence. Got a house, and am moving there beginning of February (currently live in California). Once I move in February, is there any documentation or anything to show that I'm officially a resident, or like some waiting period before I can sell my stocks and not pay California capital gains tax? Or can I immediately start selling shares then? lol.

Going forward, if you're still going to be spending part of the year in California, that could be tricky as well. California will not let your taxes go easily! With the outdoor lifestyle that we enjoy in California, I would find it very hard to leave this beautiful and varied state, though I can understand the business reasons to endure the heat and humidity of Texas.

 

[2daMoon]

Copied from the Investment thread ...

So ... is this worrying anyone? Like I guess a lot of you, I have a lot of unrealized capital gains in my portfolio. The problem with selling stock is that you have to pay taxes on it, which means your re-investment amount has now been slashed. So if you don't need to sell stock, you might not want to. In addition, inflation is a very real worry this time around, so being invested in the stock market isn't a bad idea. But if this passes (below), stock prices will come down. What to do, what to do...

---

President Biden is set to announce tax increases on the wealthy as soon as next week to pay for an increase in funding for childcare and education. The proposal, called the "American Families Plan," would reverse some of former President Trump's tax cuts from 2017, while the capital gains tax for Americans making over $1M per year could nearly double to 39.6%. Coupled with an added 3.8% tax linked to the Affordable Care Act, that's a potential 43.4% levy. The new package would also include an increase in the top income tax rate, building on a recent infrastructure proposal to raise the corporate tax rate to 28%. Biden's proposals on capital gains would only affect the federal rate. Wealthy individuals who live in California and New York, which tax capital gains as regular income at 13.3% and 11.85% (plus 3.88% in NYC), would see total capital gains duties of nearly 60%. From a strategy standpoint, increases to the capital gains tax will likely present a secular headwind to multiples going forward. Over the last 40 years, capital gains taxes have been moving in a downward trend while multiples have been moving higher. With the opposite expected to occur now, we will likely see this trend reverse.

View attachment 656318

I've read about how some folks arrange their affairs to avoid onerous state taxation.

i.e.:

Let a corporation, trust, etc. own any California real estate. (The corp or trust is still taxed by the state, and its income is controllable)
Set up a domicile as a "full time RVer" in a no income tax state. (Several RV clubs offer this service) Buy an RV and set up Vehicle registration, Driver License, mail forwarding, etc. using the no income tax state's legal address.
You can then rent the home in San Diego from the corp or trust.
Your income would no longer be associated with a residence address in California.

(Edit: There are likely a number of other strategies along these lines that are routinely employed and also legit.)

Or, follow Elon's lead and move out of California.

 

[Cosmacelf]

Copied from the Investment thread ...

I've read about how some folks arrange their affairs to avoid onerous state taxation.

i.e.:

Let a corporation, trust, etc. own any California real estate. (The corp or trust is still taxed by the state, and its income is controllable)
Set up a domicile as a "full time RVer" in a no income tax state. (Several RV clubs offer this service) Buy an RV and set up Vehicle registration, Driver License, mail forwarding, etc. using the no income tax state's legal address.
You can then rent the home in San Diego from the corp or trust.
Your income would no longer be associated with a residence address in California.

(Edit: There are likely a number of other strategies along these lines that are routinely employed and also legit.)

Or, follow Elon's lead and move out of California.

That might work, but I don’t know if the CA franchise board would think it legit. I suspect they would challenge you on this scheme if they knew about it.

 

[2daMoon]

That might work, but I don’t know if the CA franchise board would think it legit. I suspect they would challenge you on this scheme if they knew about it.

What would the state base their adverse claim upon? It seems to me that would be a tough row to hoe for them if you have all the ducks aligned, leaving no tie to Cali.

If a person owns no property, does not register vehicles, vote, license, etc. in the state, and only rents a home for a part of the year (receipts) while traveling enough to demonstrate their wanderlust lifestyle (receipts), it would seem to me to be a tough case for them to make.

It would be easy enough to consult a legal professional, and/or, have a paralegal look up related case law decisions on what constitutes a domicile in order to get the straight skinny. Considering the tax exposure, it could be worth the effort to learn more.

Another possibility might be to own a home in a no income tax state, in addition to the one in Cali. Claiming this as the legal domicile and keeping all records supporting that (registration, license, mail, voting, etc.) in that state. Then, the San Diego home is the "other" home and not the legal domicile.

The important thing is to think within the box they have designed and always play by their rules. Stay on the side of legal tax avoidance. Remember, the folks who most often use these tactics are likely also the ones who wrote the laws. Searching for the loopholes they left themselves may be quite rewarding.

 

[mrmage]

What would the state base their adverse claim upon? It seems to me that would be a tough row to hoe for them if you have all the ducks aligned, leaving no tie to Cali.

If a person owns no property, does not register vehicles, vote, license, etc. in the state, and only rents a home for a part of the year (receipts) while traveling enough to demonstrate their wanderlust lifestyle (receipts), it would seem to me to be a tough case for them to make.

It would be easy enough to consult a legal professional, and/or, have a paralegal look up related case law decisions on what constitutes a domicile in order to get the straight skinny. Considering the tax exposure, it could be worth the effort to learn more.

Another possibility might be to own a home in a no income tax state, in addition to the one in Cali. Claiming this as the legal domicile and keeping all records supporting that (registration, license, mail, voting, etc.) in that state. Then, the San Diego home is the "other" home and not the legal domicile.

The important thing is to think within the box they have designed and always play by their rules. Stay on the side of legal tax avoidance. Remember, the folks who most often use these tactics are likely also the ones who wrote the laws. Searching for the loopholes they left themselves may be quite rewarding.

I have spoken to several tax lawyers and CPAs about state residency. A key consideration is that the number of days days spent in California. 45 days over the year is the safe number. Staying in California a substantial amount of the time won't cut it, whether renting or owning the property.

Anyone serious about leaving California should check the guidelines for determining state residency.

https://www.ftb.ca.gov/forms/2020/2020-1031-publication.pdf

 

[2daMoon]

I have spoken to several tax lawyers and CPAs about state residency. A key consideration is that the number of days days spent in California. 45 days over the year is the safe number. Staying in California a substantial amount of the time won't cut it, whether renting or owning the property.

Anyone serious about leaving California should check the guidelines for determining state residency.

https://www.ftb.ca.gov/forms/2020/2020-1031-publication.pdf

Copied from that linked document:

E Who Are Residents and Nonresidents​

A resident is any individual who meets any of the following:​

•Present in California for other than a temporary or transitory purpose.​

​

G Guidelines for Determining Residency​

The underlying theory of residency is that you are a resident of the place where you have the closest connections.The following list shows some of the factors you can use to help determine your residency status. Since your residence is usually the place where you have the closest ties, you should compare your ties to California with your ties elsewhere. In using these factors, it is the strength of your ties, not just the number of ties, that determines your residency.​

​

This is only a partial list of the factors to consider. No one factor is determinative. Consider all the facts of your particular situation to determine your residency status.​

​

Factors to consider are as follows:​

•Amount of time you spend in California versus amount of time you spend outside California.​

•Location of your spouse/RDP and children.​

•Location of your principal residence.​

•State that issued your driver’s license.​

•State where your vehicles are registered.​

•State where you maintain your professional licenses.​

•State where you are registered to vote.​

•Location of the banks where you maintain accounts.​

•The origination point of your financial transactions.​

•Location of your medical professionals and other healthcare providers (doctors, dentists etc.), accountants, and attorneys.​

​

L Meaning of Domicile​

​

The term “domicile” has a special legal definition that is not the same as residence. While many states consider domicile and residence to be the same, California makes a distinction and views them as two separate concepts, even though they may often overlap.​

​

For instance, you may be domiciled in California but not be a California resident or you may be domiciled in another state but be a California resident for income tax purposes.​

​

Domicile is defined for tax purposes as the place where you voluntarily establish yourself and family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed, permanent home and principal establishment.​

It is the place where, whenever you are absent, you intend to return. The maintenance of a marital abode in California is a significant factor in establishing domicile in California.​

​

Change of Domicile​

​

You can have only one domicile at a time. Once you acquire a domicile, you retain that domicile until you acquire another.​

​

A change of domicile requires all of the following:​

•Abandonment of your prior domicile.​

•Physically moving to and residing in the new locality.​

•Intent to remain in the new locality permanently or indefinitely as demonstrated by your actions.​

​

End copy

In G it appears to indicate how it is actually the individual who makes the determination of Residence or Domicile, rather than the state. This determination would be based upon the "list of items" to consider. Because "no one factor is determinative" it would lend support to how meeting several or most of the factors would suffice in determining one's residence and/or domicile status.

In "L Change of Domicile," what constitutes "abandonment of domicile" in law? It seems it could be the changing of most of the items listed in section G from one place to another. After all, "domicile" is "where you voluntarily establish yourself and family" is it not?

Consider this from the perspective of how the above might be applied to a full time RVer who chooses their domicile for convenience due to their transitory nature. They don't physically move to their new domicile if they are always traveling, yet it is their legal domicile, right?

Likewise, a full time RVer clearly has no intent to remain the the new locality permanently or indefinitely, as their actions demonstrate they don't intend to remain anywhere at all, correct?

If someone actually owns an RV, and do not own property in CA, yet use hookups at an RV slot rented in San Diego to connect to the RV. And, the RV rental agreement includes use of the house and grounds as part of the RV space contract, wouldn't this be legit?

Frankly, it seems the guidelines from that link do provide the formula for establishing a domicile elsewhere, while enjoying Southern California for many months of the year for a temporary or transitory purpose as an RVer.

It would be a significant challenge for the state of CA to build a case, convince a grand jury, and then win in court beyond reasonable doubt were the formula they provide be applied.

They would have to have a good reason to pursue this, and staying under the radar ought to be easy enough once the lion's share of the bullet points are taken care of.

I'd look into this and see if any of my suspicions after a read of that document are helpful. (preceding is opinion, rather than legal advice)

 

[bkp_duke]

Copied from that linked document:

E Who Are Residents and Nonresidents​

A resident is any individual who meets any of the following:​

•Present in California for other than a temporary or transitory purpose.​

​

G Guidelines for Determining Residency​

The underlying theory of residency is that you are a resident of the place where you have the closest connections.The following list shows some of the factors you can use to help determine your residency status. Since your residence is usually the place where you have the closest ties, you should compare your ties to California with your ties elsewhere. In using these factors, it is the strength of your ties, not just the number of ties, that determines your residency.​

​

This is only a partial list of the factors to consider. No one factor is determinative. Consider all the facts of your particular situation to determine your residency status.​

​

Factors to consider are as follows:​

•Amount of time you spend in California versus amount of time you spend outside California.​

•Location of your spouse/RDP and children.​

•Location of your principal residence.​

•State that issued your driver’s license.​

•State where your vehicles are registered.​

•State where you maintain your professional licenses.​

•State where you are registered to vote.​

•Location of the banks where you maintain accounts.​

•The origination point of your financial transactions.​

•Location of your medical professionals and other healthcare providers (doctors, dentists etc.), accountants, and attorneys.​

​

L Meaning of Domicile​

​

The term “domicile” has a special legal definition that is not the same as residence. While many states consider domicile and residence to be the same, California makes a distinction and views them as two separate concepts, even though they may often overlap.​

​

For instance, you may be domiciled in California but not be a California resident or you may be domiciled in another state but be a California resident for income tax purposes.​

​

Domicile is defined for tax purposes as the place where you voluntarily establish yourself and family, not merely for a special or limited purpose, but with a present intention of making it your true, fixed, permanent home and principal establishment.​

It is the place where, whenever you are absent, you intend to return. The maintenance of a marital abode in California is a significant factor in establishing domicile in California.​

​

Change of Domicile​

​

You can have only one domicile at a time. Once you acquire a domicile, you retain that domicile until you acquire another.​

​

A change of domicile requires all of the following:​

•Abandonment of your prior domicile.​

•Physically moving to and residing in the new locality.​

•Intent to remain in the new locality permanently or indefinitely as demonstrated by your actions.​

​

End copy

In G it appears to indicate how it is actually the individual who makes the determination of Residence or Domicile, rather than the state. This determination would be based upon the "list of items" to consider. Because "no one factor is determinative" it would lend support to how meeting several or most of the factors would suffice in determining one's residence and/or domicile status.

In "L Change of Domicile," what constitutes "abandonment of domicile" in law? It seems it could be the changing of most of the items listed in section G from one place to another. After all, "domicile" is "where you voluntarily establish yourself and family" is it not?

Consider this from the perspective of how the above might be applied to a full time RVer who chooses their domicile for convenience due to their transitory nature. They don't physically move to their new domicile if they are always traveling, yet it is their legal domicile, right?

Likewise, a full time RVer clearly has no intent to remain the the new locality permanently or indefinitely, as their actions demonstrate they don't intend to remain anywhere at all, correct?

If someone actually owns an RV, and do not own property in CA, yet use hookups at an RV slot rented in San Diego to connect to the RV. And, the RV rental agreement includes use of the house and grounds as part of the RV space contract, wouldn't this be legit?

Frankly, it seems the guidelines from that link do provide the formula for establishing a domicile elsewhere, while enjoying Southern California for many months of the year for a temporary or transitory purpose as an RVer.

It would be a significant challenge for the state of CA to build a case, convince a grand jury, and then win in court beyond reasonable doubt were the formula they provide be applied.

They would have to have a good reason to pursue this, and staying under the radar ought to be easy enough once the lion's share of the bullet points are taken care of.

I'd look into this and see if any of my suspicions after a read of that document are helpful. (preceding is opinion, rather than legal advice)

Just an FYI, the FTB is notorious for going after people they believe are trying to game the residency system.

Don’t Leave California Before Talking Taxes

If you are considering leaving California, even temporarily, read this discussion of the tax consequences before you move!

www.rina.com

Now, California Can Assess Taxes No Matter Where You Live...Really

Bindley is a self-employed screenplay writer living in Arizona. He performed services for a few companies headquartered in California, performing all services in Arizona. California ruled he has to pay tax in California, on top of paying tax in his home state.

www.forbes.com

California Non-Resident Tax: Leaving the Franchise Tax Board Behind | Moskowitz LLP | A Tax Law Firm

California non-resident tax: If you are leaving California, it is important to plan your move carefully so you aren't still considered a resident.

moskowitzllp.com

 

[2daMoon]

Just an FYI, the FTB is notorious for going after people they believe are trying to game the residency system.

Don’t Leave California Before Talking Taxes

If you are considering leaving California, even temporarily, read this discussion of the tax consequences before you move!

www.rina.com

Now, California Can Assess Taxes No Matter Where You Live...Really

Bindley is a self-employed screenplay writer living in Arizona. He performed services for a few companies headquartered in California, performing all services in Arizona. California ruled he has to pay tax in California, on top of paying tax in his home state.

www.forbes.com

California Non-Resident Tax: Leaving the Franchise Tax Board Behind | Moskowitz LLP | A Tax Law Firm

California non-resident tax: If you are leaving California, it is important to plan your move carefully so you aren't still considered a resident.

moskowitzllp.com

Then, just simply be happy to pay extra for all that California offers for the price, or, join the exodus.

I can't imagine living in an income tax state, having never done so.

 

[22522]

No dry powder update.

Some may have noticed me exploring ways to use a share conversion from an IRA into a Roth as a way to:

1) take advantage of the low stock price
2) when there is no available cash.

It turns out the transfer does occur at end of day price, even though cost basis FIFO views show differently.

At 30% tax rate on 20 shares moved to Roth a close of business yesterday... overnight the move saved $60 in tax liabilities. Just from the price increase overnight.

As the price goes up, the tax liability savings will only improve. Could be hundreds of dollars per share.

I am not a high roller. (These sums are meaningful to me.)a

Seems to work, best I can tell. Not an advice.

 

[Coolio2000]

Democrats Want to End This Lucrative Retirement Account Loophole
Anyone here concerned about the changes Biden wants to make on forced disbursements of over $10,000,000 in 401K accounts? I imagine a lot of folks here will have this problem in the coming years if TSLA keeps going up and are forced to sell shares. Any recommendations on strategies on how to avoid this? I want to HODL my shares for as long as possible.

 

[Open Interest]

Democrats Want to End This Lucrative Retirement Account Loophole
Anyone here concerned about the changes Biden wants to make on forced disbursements of over $10,000,000 in 401K accounts? I imagine a lot of folks here will have this problem in the coming years if TSLA keeps going up and are forced to sell shares. Any recommendations on strategies on how to avoid this? I want to HODL my shares for as long as possible.

I would seriously love to have that problem!

 

[Bet TSLA]

Democrats Want to End This Lucrative Retirement Account Loophole
Anyone here concerned about the changes Biden wants to make on forced disbursements of over $10,000,000 in 401K accounts? I imagine a lot of folks here will have this problem in the coming years if TSLA keeps going up and are forced to sell shares. Any recommendations on strategies on how to avoid this? I want to HODL my shares for as long as possible.

Here's my strategy.
1. Bet on TSLA and make a ton of money.
2. Pay my taxes without whining about it.

It's truly pathetic watching people get rich through no actual work on their part and complain endlessly about how they don't get to keep it all.

 

[Tim S]

Democrats Want to End This Lucrative Retirement Account Loophole
Anyone here concerned about the changes Biden wants to make on forced disbursements of over $10,000,000 in 401K accounts? I imagine a lot of folks here will have this problem in the coming years if TSLA keeps going up and are forced to sell shares. Any recommendations on strategies on how to avoid this? I want to HODL my shares for as long as possible.

If this really becomes a "problem" for you, donate shares to charity. You can avoid capital gains tax and help those in need.

 

[MikeC]

Anyone here concerned about the changes Biden wants to make on forced disbursements of over $10,000,000 in 401K accounts? I imagine a lot of folks here will have this problem in the coming years if TSLA keeps going up and are forced to sell shares. Any recommendations on strategies on how to avoid this? I want to HODL my shares for as long as possible.

If you were forced to take a distribution, there’s nothing stopping you from buying TSLA in a taxable account. It may make more sense to keep the long-term capital gains (LTCG) in a taxable account anyway, because any profits you make in the IRA are taxed as income, which is probably going to be higher than the LTCG rate.

 

[Singuy]

Democrats Want to End This Lucrative Retirement Account Loophole
Anyone here concerned about the changes Biden wants to make on forced disbursements of over $10,000,000 in 401K accounts? I imagine a lot of folks here will have this problem in the coming years if TSLA keeps going up and are forced to sell shares. Any recommendations on strategies on how to avoid this? I want to HODL my shares for as long as possible.

Seems like they are not forcing the penalty on you for this forced distribution even if it's before 59 yo. So you can get some of those sweet gains early without paying taxes from a roth? Seems to be a win.

 

[jhm]

Democrats Want to End This Lucrative Retirement Account Loophole
Anyone here concerned about the changes Biden wants to make on forced disbursements of over $10,000,000 in 401K accounts? I imagine a lot of folks here will have this problem in the coming years if TSLA keeps going up and are forced to sell shares. Any recommendations on strategies on how to avoid this? I want to HODL my shares for as long as possible.

The problem I see here is limiting the ability to make Roth conversions. The amount you convert becomes ordinary income in the year you convert it, so it counts against the $400k income limit. Ergo, you can covert no more than $400k of your IRA each year, even if you are unemployed. So for example, if you have $1M in TSLA in your IRA, it could grow by more than $400k in a year, and you would still have more than $1M TSLA stuck in your IRA a year after maximizing your conversion.

Be warned, traditional IRA and 401k plans are a trap for Tesla investors.

 

[Hock1]

Democrats Want to End This Lucrative Retirement Account Loophole
Anyone here concerned about the changes Biden wants to make on forced disbursements of over $10,000,000 in 401K accounts? I imagine a lot of folks here will have this problem in the coming years if TSLA keeps going up and are forced to sell shares. Any recommendations on strategies on how to avoid this? I want to HODL my shares for as long as possible.

No sense in worrying about something over which you have no control. Wait and see if it becomes law, then deal with it.