Getting out of the market, I'm old enough that I've been thru 2 market corrections. I'll be retiring within 5 years and don't want to start over a 3rd time. I have what I need I just want to protect it.
There are no CPA's within 50 miles that will even return your calls and my broker is pissed because I'm selling my investments and is no help. I've been reading IRS literature and I really can't find any answers.
I'm selling mutual funds, etf's and a couple single stocks. They have all been good to me. Most I've owned for 15+ years. I understand capital gains and how their taxed. I looked at the tax schedule and know exactly what I'll owe.
My question is how to pay the taxes on the capital gains. I will owe the IRS and don't want to get penalized and get into the estimated taxes when I file my 2019 income tax return. Do I even need to make a separate tax payment since there will only be about 6 weeks left in the tax year? Will the IRS take this into consideration? Thanks

My friend, I get it, you’re asking for help. And, you’ll have some advice from those more qualified than me. But for the decisions you’re making and the sum of money I imagine, drive the more than 50 miles for competent guidance.

not a tax professional

but when you file your 2019 1040, you will complete the capital gain worksheet and report the gain as per Schedule D I believe it is

it gets rolled up into the rest of your tax situation

if you owe - which you most likely will - you write a check to Uncle Sam when you file your return

the hardest part will likely be figuring out the cost basis for a bunch of stocks you have accumulated at various intervals / prices over the years

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https://www.thebalance.com/capital-gains-tax-3192969

Tax Treatment of Capital Gains—Short-Term vs. Long-Term

How capital gains are taxed depends on what kind of capital asset you invested in and how long you held that asset. Gains are grouped into short-term and long-term holding periods for tax purposes. The short-term holding period is one year or less. The long-term holding period is more than one year.

Short-term gains are taxed at ordinary income tax rates according to your tax bracket. Long-term capital gains are taxed at long-term capital gains rates, which are less than ordinary tax rates. The long-term capital gains tax rate is either zero percent, 15 percent, or 20 percent as of 2019, depending on your income.

It can be worth it to consider waiting until you've owned an asset for one year and one day if you're on the cusp of selling an asset that will likely result in a profit before that time. Tax planning for investors focuses on deferring the sale of profitable investments until you qualify for the discounted long-term capital gains tax rate.

Federal Tax Forms Relating to Capital Gains

Capital gains are reported using Schedule D and Form 8949. Taxpayers might have to use the Qualified Dividends and Capital Gain Tax Worksheet found in the Instructions for Form 1040 when calculating the proper amount of federal income tax.

All the details regarding individual trades are reported on Form 8949, and totals from Form 8949 are then summarized on Schedule D, then transferred to line 13 of Schedule 1 of the new 2018 Form 1040.

Form 8949 is organized much like a spreadsheet, with all the essential information about each investment you sold during the year. Capital gain or loss is reported for each transaction, then your total gains or losses are figured. You will have either a net profit or a net loss from all your trades. There are special rules for capital losses, such as annual limitations on capital losses and wash sale rules.
Keep Investment Records

Investors should keep track of all their investments. This information is essential for calculating the amount of capital gain you have. You must know what you bought, how much you invested, your brokerage fees and commissions, and when you bought the investment. You must also know the date of sale for your investment, the gross proceeds from the sale, and any fees or commissions you paid to sell.

You might want to use a spreadsheet or personal finance software to keep track of this information. Personal finance programs can provide more robust investment tracking features than spreadsheets. Your broker might also have tools for tracking cost basis, gains, and losses. There are also specialized investment recordkeeping software programs available, such as GainsKeeper.

Retain any reports and trade confirmations as backup documentation. Annual reports from your broker are especially helpful, and these should be kept along with your other tax-related documents. Trade confirmations and gain/loss reports will come in handy when you're preparing your tax return.


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Even $1000 spent on a CPA will likely save you many more thousands.

Make some more calls, you'll find someone.

Depending on the timing, you could be liable for underpayment of estimates if you wait until filing in April to pay the taxes. IRS form 2210 is used for this (Underpayment of Estimated Taxes) and going through the work of filling it out may help you figure out if you need to make an estimated payment.

Seriously though, even having dealt with some of that stuff in the past, I’d drive the 50 miles and get professional tax advice from a competent CPA.

On another note, if you haven’t already sold everything, you might ask said CPA if there was significant tax advantage to splitting the sales over two tax years (say half now, half in early January). If you did have significant gains in January, you would definitely want to make an estimated payment for that first quarter income, but the CPA can go over all the pros and cons.

I am in the "investment business"

Cap gains - short and long term - are paid annually when you file. You don't have to worry about quarterly assumptions etc.

On a side note, since I am in the business, I will council you that "getting out" is generally a terrible decision. You said you were 5 years from retirement, so I am assuming somewhere in your young 60s. Depending on your health, you have a life expectancy of 25ish years. Without market based investments, your balance is going to be depleted in buying power from inflation. Once you create all this cash, what are you going to do with it? Savings account? CDs?

The best option is to have a risk appropriate asset allocation; proper asset management with a disciplined repeatable process for rebalancing, asset selection, and ongoing management; a thorough income plan, and an advisor that you can trust. With proper planning, you can reduce the downside when market craziness happens.

I am happy to make a referral for a good advisor as I know quite a few in the Buckeye State. I am an OSU grad and spent most of my life in C-Bus.

Email is in profile if you want a second opinion before you pull the trigger.

Not a tax lawyer, etc., but you have until Jan 15 2020 to make estimated tax payments for 2019.

Per Pub 505: "If you don’t have income subject to estimated tax until a later payment period, you must make your first payment by the due date for that period."

Best advice I can give, based on 15 minutes of thinking and googling about it, is:

Option A

1. Figure out how much extra tax you can afford to pay by Jan 15 2020, then sell the amount of stocks that give you that amount of capital gains, and make the payment before Jan 15 2020.

2. Sell the rest sometime in 2020 (you choose the time period) and make estimated tax payments or adjust withholding.

OR

Option B

Sell everything now and make the entire huge estimated tax payment before Jan 15 2020.

Option A or B depends on where you think the market is going, and what you can afford to pay
as a lump sum.

The mutual funds calculate short and long term gains for you. Taxed at different rates, short and long. I am still in equities in a big way, but will slowly be raising cash since I will need some of the money to live. I agree with the investment broker that getting all out now is NOT a good idea. You have INFLATION risk, with cash. I run a small business. JALLEN would suggest SLOWLY going to cash, if you wanted to.

Rhino makes a point about tax pros. I paid mine three grand do to my taxes. He SAVES me money and handles IRS concerns. THey will send you a 1099 when you sell. IRS gets one and you do to. It better be right or you pay.

Email ArmedProf. He knows what he is talking about.

Why liquidate?
Why the hurry?
Can't you either diversify or move to less risk investments?
Curious what prompted this?
If you are talking about a big chunk of change then finding a professional seems wise to me.
Good Luck

quote:

Originally posted by ZSMICHAEL:
You have INFLATION risk, with cash.

You don’t have inflation risk with cash. You have inflation REALITY with cash. Inflation is simply a hidden tax. 2% per year would be a conservative number (it is likely to be more most years). Put cash in the bank and with that whopping interest you get paid, you’re likely losing pretty much two percent (or more) of your purchasing power every year. And that doesn’t consider invading principal, which only means you’ll be depleting your savings faster...

quote:

I'll be retiring within 5 years and don't want to start over a 3rd time. I have what I need I just want to protect it.

What type of account is this held in?
If it's in a retirement account, such as a 401K or and IRA, you've got nothing to worry about. It's not taxed until you withdraw the funds from the account. You can go to cash if you wish.

[quote]You don’t have inflation risk with cash. You have inflation REALITY with cash. Inflation is simply a hidden tax. 2% per year would be a conservative number (it is likely to be more most years). Put cash in the bank and with that whopping interest you get paid, you’re likely losing pretty much two percent (or more) of your purchasing power every year. And that doesn’t consider invading principal, which only means you’ll be depleting your savings faster...
^^^^^^^
YES> Point well taken. Five years FROM retirement. At best, take your age and figure that percentage in SAFE stuff. Short term bonds do not pay much these days, nor CDS or money market funds. I have been through all dips, not just corrections since 1981. I am mainly still in stocks despite being ten years down the road from you. Mine are in tax advantaged accounts and personal both. Your life expectancy tables at 63 are another 25 years. If your health is in the dumps, another story then. Let us know what you do.
 

quote:

Do I even need to make a separate tax payment since there will only be about 6 weeks left in the tax year? Will the IRS take this into consideration? Thanks

Generally, if you've paid in this year at least as much as you paid in tax last year, you won't owe penalty. Additionally, yes you can calculate penalty based on when the taxable income was received.

IRS Publication 505 has a whole section on penalties for under payment.

quote:

Originally posted by armedprof:
I am in the "investment business"

Cap gains - short and long term - are paid annually when you file. You don't have to worry about quarterly assumptions etc.

On a side note, since I am in the business, I will council you that "getting out" is generally a terrible decision. You said you were 5 years from retirement, so I am assuming somewhere in your young 60s. Depending on your health, you have a life expectancy of 25ish years. Without market based investments, your balance is going to be depleted in buying power from inflation. Once you create all this cash, what are you going to do with it? Savings account? CDs?

The best option is to have a risk appropriate asset allocation; proper asset management with a disciplined repeatable process for rebalancing, asset selection, and ongoing management; a thorough income plan, and an advisor that you can trust. With proper planning, you can reduce the downside when market craziness happens.

I am happy to make a referral for a good advisor as I know quite a few in the Buckeye State. I am an OSU grad and spent most of my life in C-Bus.

Email is in profile if you want a second opinion before you pull the trigger.

I live out in the country as well and my CPA is an hour’s drive away but I consider his tax strategies invaluable.
I would take armedprof’s advise and seek professional help

quote:

Originally posted by mjlennon:
But for the decisions you’re making and the sum of money I imagine, drive the more than 50 miles for competent guidance.

Sounds like good advice to me. Take the ride.
Don’t be penny-wise and pound-foolish.

Take the ride once, then the rest can be done on the phone or through a screen/video share I'd think?

PM Sent

Wow, thanks everyone for the advice, I appreciate it all. Wanted to clarify a couple things. I should have been more clear. I am not totally liquidating.
This is not an IRA or 401k, this is my money I've saved after taxes.
I have IRA's and a work 401k that are still invested 100% in the market although I am going to take a more conservative approach.
I am keeping one managed ETF open to move cash back into if I see the need. This is also invested 100% in the market. Medium risk category.
The stuff I'm selling is high risk and will take the worst of a correction. Its served me will over the years but I think its time to take this money and run.
I don't want to start a shit storm but I see a correction coming and want to minimize the hit. If there is even a hint of a democrat being president or them taking the majority in the senate there will be a correction. Several other things that I see on the horizon worry me as well.

Cayenne,

You're right that a correction is coming, but there will also be a recovery. If you bought into the market at the peak of the '07 bubble and road out the crash, you'd be hugely up at this point.

In a retirement situation, I'd look to have five years expenses in low risk investments, to fund you while you to let the higher risk investments ride through the correction. Given the way the Fed, and other central banks are dumping money into the economy, there's a likely a risk of inflation as a crash. If you sitting in bonds or cash if that happens, you're going to get crushed the other way.

My wife and I started using a CPA about 25 years ago when we bought a vacation rental home and our taxes became complicated. This year we live in San Diego but were happy to include a visit to our CPA (still in Northern California) on our trip north. I told my wife and the accountant that the money we have paid him for his fees has been the best spent money of the past 25 years. He has been particularly helpful in the past few years with going into retirement, moving, and doing 2 1031 real estate exchanges.