Ben Chuanlong Du's Blog

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Taxes on Investment Gains

Things on this page are fragmentary and immature notes/thoughts of the author. Please read with your own judgement!

  1. Treasury bonds and securities are exempted from state & local income taxes.

  2. The IRS allows you to deduct from your taxable income a capital loss, for example, from a stock or other investment that has lost money. Please refer to How to deduct stock losses from your taxes and How to Cut Your Tax Bill with Tax-Loss Harvesting for more details and tips.

Taxes on Different Investments Gains

  1. RSU: 2 taxes, first: income tax; 2nd: capital gain taxes
  2. interest rate: income tax
  3. MMFs dividend: monthly, taxes as income tax
  4. dividend
    • ordinary dividend: income tax
    • qualified dividend: capital gain taxes: how about short-term vs long-term?

Long-term vs Short-term Capital Gains

Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

To limit capital gains taxes, you can - invest for the long-term - use tax-advantaged retirement accounts - offset capital gains with capital losses

https://smartasset.com/taxes/state-capital-gains-tax

  1. federal tax on capital gains
    • short-term: income tax (depending on your income range)
    • long-term: also depending on income range
  2. WA state tax on capital gains
    • short-term: no
    • long-term: 7% on capital gains over $250,000

What is the long-term capital gains tax?

What is the long-term capital gains tax?

https://turbotax.intuit.com/tax-tips/investments-and-taxes/guide-to-short-term-vs-long-term-capital-gains-taxes-brokerage-accounts-etc/L7KCu9etn

https://smartasset.com/taxes/state-capital-gains-tax

https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax/frequently-asked-questions-about-washingtons-capital-gains-tax#:~:text=Is%20day%2Dtrading%20subject%20to,held%20for%20a%20shorter%20period.

https://dor.wa.gov/taxes-rates/other-taxes/capital-gains-tax

Tax on ESPP

Please refer to the section "US tax considerations" on the page Understanding employee stock purchase plans for details. In short, you want to have qualifying dispositions which requires:

  • The disposition occurs more than two years after the grant date, and
  • The disposition occurs more than one year after the purchase date

Tax on RSU

Restricted Stock Units (RSUs) Comprehensive Guide

  1. Do NOT transfer RSUs from a stock plan account to another account no matter the other account is within the same brokerage or not! The reason is that vested RSUs might show a zero cost in non-stock plan account, which means that you gain is substantially over counted and thus you will be over taxed when you sell those RSUs from a non-stock plan account! Of course, you can submit an adjusted cost basis for those RSUs but it is a nightmare to go through as tax is already complicate enough.
    ESPP might show the right cost in non-stock plan account, however, it is suggested that you keep ESPP in your stock account as well. If you do want to transfer RSUs or ESPP to a non-stock plan account, it is suggested that you sell them from you stock plan account and transfer the money out. You can alwasy purchase stocks back if you do want to hold stocks instead of cash in the other non-stock plan account.

  2. The way to cover tax for RSU can be updated at https://us.etrade.com/etx/sp/stockplan/#/myAccount/planElections/stockElections. You might not be able to update it for 2 reasons. First, some company use the default way (sell to cover) and does not allow employees to change it. Second, even if you company allows you to update the way to cover tax, you have to wait for an open time window to update it.

When RSU shares vest, shares are withheld and sold to cover your tax commitment. The percentage withheld is dictated by your employer typically to match how your bonus are taxed. They deliver those instructions to us and we must comply. You can view this for yourself in the Release of Confirmation by going to "Stock Plans" >> "Holdings" and expanding the blue arrow next to the grant date. You'll see "View Confirmation of Release" below the grant details. Generally when you sell ESPP no tax is paid upon selling them. However, coming tax season we will provide you a tax form. Where you can then work with an accountant or tax advisor on how to report that.

References

  • Federal income tax rates and brackets

  • Topic No. 409, Capital Gains and Losses

  • https://us.etrade.com/app/taxcenter#/taxdoc?ploc=c-newnav-acct-tax

  • https://us.etrade.com/etx/sp/stockplan/#/myAccount/gainsLosses

  • https://content.etrade.com/etrade/optionslink/espptax.pdf

  • https://content.etrade.com/etrade/optionslink/oltaxexercise.pdf

  • https://content.etrade.com/etrade/optionslink/isotax.pdf

  • https://content.etrade.com/etrade/customer/invest/finalrestrictedstockfaqs.pdf

  • https://content.etrade.com/etrade/optionslink/sartax.pdf

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