For the most part, the following is pretty accurate (I think) and contains facts and hypotheses lol.

I recently had a discussion with a friend about stocks/taxes. We ran through some hypotheticals on the best way to strategize cashing out some funds from stock sales (that have yet to be sold and may not be for some time, actually. Thus, the hypothetical part). Here are the details if anyone is interested in adding their two cents.

-Married couple living together (files taxes together in state of CA)
-One makes decent money but less than $100K
-Spouse makes pittance in new job (independent contractor) that was just started. Maybe a few grand this year at most.
-Shared/joint stock account that has accumulated a nice total from minimal original investment (I think the original amount was roughly $1K and is now about $25-$30K.

Ok, so here's the deal...

Is it possible to reduce the taxes by doing the following at this time under these circumstances?

1. have the stock acct signed over to the one spouse that will show very little income this year.
2. Cash out that stock.
3. File taxes as Married/Separate.


I don't even know if this is possible or beneficial. Guy seems to think it is but I told him I wasn't so sure. Anyone hazard a guess as to wether it'd be worth doing? I know little about the tax code and probably less about the stock market.

Its definitely worth considering. some people will also convert Roth IRAs to traditional IRAs. you're best off asking over here - [bogleheads.org]

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Thanks for that link.

Gift them to a non profit then deduct the value of the gift off your next Fed and State tax.

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M>B>
Gift them to a non profit then deduct the value of the gift off your next Fed and State tax.

If and when the funds would be cashed out, it'd likely be due to need for bills, etc.

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mattkime
Its definitely worth considering. some people will also convert Roth IRAs to traditional IRAs. you're best off asking over here - [bogleheads.org]

Why would someone convert a Roth to a conventional IRA. I can see going the other way and I did in 2010, but Roth to Conventional?

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DCrunch

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mattkime
Its definitely worth considering. some people will also convert Roth IRAs to traditional IRAs. you're best off asking over here - [bogleheads.org]

Why would someone convert a Roth to a conventional IRA. I can see going the other way and I did in 2010, but Roth to Conventional?

I stand corrected!

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M>B>
Gift them to a non profit then deduct the value of the gift off your next Fed and State tax.

Huh? How does it benefit them to give away all the money?

I would recommend mocking up a few TurboTax files using last year's program with the numbers for this year that would result if you sold the stock this year. Compare a joint return to married filing separately.

I suspect that joint will still be better, but I am not an accountant.

Good idea Janit. I think I still may have one of those tax apps here somewhere.

You can also mock up the scenarios in the free Taxcaster web app:

[turbotax.intuit.com]

I've found this very handy to make estimates.

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(vikm)
Good idea Janit. I think I still may have one of those tax apps here somewhere.

If you do this, make sure you have backed up a copy of the real returns from that year to a safe place. You don't want to lose the real file by accidentally overwriting it.