A potential change that isn’t getting too much attention is the requirement to sell securities on a FIFO basis rather than it being an option under current law. This might blindside people who hold much of their assets in mutual funds. Even if the individual uses FIFO by choice now, that doesn’t mean the fund companies have been using FIFO.
"This also would mean that mutual fund managers would also lose the ability to pick specifically which shares to sell. The change would take effect Jan. 1.
“Requiring taxpayers to treat securities as sold on a first-in, first-out basis would be disproportionately harmful to ordinary Americans who invest with funds,” said Paul Schott Stevens, president and CEO of the Investment Company Institute.
“It would increase significantly the amount of taxable distributions made to investors every year and tie the hands of fund managers as they pursue investment strategies on behalf of savers.”"
[quote=“JoeFriday, post:379, topic:1661”]
I did not post half the “population”. I did not post half the “country”. I posted “half the country’s TAXPAYERS”, as in those paying federal income tax. Your post, argumentative or not, is faulty.[/quote]It’s quite unfortunate that your posts are so intentionally misleading. [/quote]
My post was in regards to those who pay federal income tax. Your post was in regards to those who do not pay federal income tax. I’ll leave it to others to delineate who is being misleading.
[quote=“gwraigty, post:382, topic:1661, full:true”]
A potential change that isn’t getting too much attention is the requirement to sell securities on a FIFO basis rather than it being an option under current law. This might blindside people who hold much of their assets in mutual funds. Even if the individual uses FIFO by choice now, that doesn’t mean the fund companies have been using FIFO.[/quote]
Nice little $4 Billion tax increase, eh ? Not to mention it would but a big dent in the advantages of ETFs.
Well, even Goldman Sachs, who has never seen a tax cut they didn’t like, sez these GOP plans (both houses) stink. They say they won’t increase economic growth, won’t create jobs, won’t spur business investment, but will create trillions and trillions of federal red ink.
And the cat’s out of the bag now, as several congressional GOPers have admitted the game plan, that when the federal debt explodes, their response will not be to admit they were wrong and reverse course, but they plan to then claim they need to cut Social Security & Medicare.
[quote=“JoeFriday, post:384, topic:1661”]
Nice little $4 Billion tax increase, eh ? Not to mention it would but a big dent in the advantages of ETFs.
Charming.
[/quote]Wouldn’t this almost exclusively disadvantage upper income households, who are the ones with taxable investments? What happened to “the Rich & Corporate backing their Brinks trucks up to the U.S. Treasury and taking what they want?”
Its true that most of the impact on the stock sale change would be felt by the top 10%. They own 90% of the stock and will pay 90% of that $4b increase. OTOH they get 40% of the total $1.5 trillion tax cut.
Lets see 40% of $1.5 trillion minus 90% of $4B … yeah I think they’re still coming out ahead.
[quote=“JoeFriday, post:384, topic:1661”]
Nice little $4 Billion tax increase, eh ? Not to mention it would but a big dent in the advantages of ETFs.[/quote]
Not at all. ETFs pay no tax when the distribute shares via a creation/redemption transaction with an authorized participant. Yes, it might be a little easier if they can pick which, but not that much if they have very high turnover like the major ETFs do. On the other hand, it would be noticeably worse for mutual funds, who would have to sell earlier positions for higher gains, and in turn have to make larger taxable capital gain distributions that would incur accelerated tax liabilities for their shareholders.
[quote=“jerosen, post:387, topic:1661”]
Lets see 40% of $1.5 trillion minus 90% of $4B … yeah I think they’re still coming out ahead.
[/quote]Of course. The goal is for most households to come out ahead, as on a net basis it is intended to be a tax cut.
It is just not true to imply that this version of the tax bill is purely one sided and would only provide massive benefits to the upper income households. It should, of course, be obvious that the more you’re paying in taxes, the more you stand benefit from a tax reduction, but one of the reasons that this tax reform is so difficult is because it contains a number of provisions that are a tough sell for people on the opposite sides of the income spectrum.
Here are two nice short summaries of the tax proposals and their differences, one focusing on personal income tax and one of the estate tax / estate planning. Two pages each, short and sweet.
$4B increase doesn’t change the net $600B cut. Doesn’t refute that argument that the rich are making out great in this cut.
You were trying to cite this $4B increase impacting mostly the rich as some sort of argument that the rich aren’t getting the vast benefit of this tax reform proposal.
[quote=“jerosen, post:391, topic:1661”]
$4B increase doesn’t change the net $600B cut. Doesn’t refute that argument that the rich are making out great in this cut.
You were trying to cite this $4B increase impacting mostly the rich as some sort of argument that the rich aren’t getting the vast benefit of this tax reform proposal.
[/quote]I wasn’t the one citing the $4B increase. JoeFriday was the one who referenced it in his criticism of the tax reform.
What struck me as rather amusing is JoeFriday’s complaint about the tax reform benefiting those who are taxed the most, but then also complaining about a provision in the tax bill that is specifically intended to reduce the net benefit that would be received by those people.
Well, a couple of people I saw from Wall Street disagreed. Not to mention Vanguard, Fidelity, and Eaton Vance are all publicly voicing opposition. You’re welcome to argue with them.
Thanks for the heads up on this potential change – I can only hope it gets dropped along the way. For several decades I’ve kept meticulous records of transactions for the express purpose of being able to use the specific-shares method of selling.
This is way down the list of dumb things about these tax proposals, but it’s still aggravating.
If you can find a link to any discussion of the FIFO tax accounting on ETFs, I’d be happy to read it. I found two recent articles discussing the tax proposal (one posted above by gwraigty), and both indicated that mutual funds and individuals would have fewer choices regarding the tax treatment of stock sales and consequently would see higher realized gains and higher taxes if they sold. This I agree with, but I didn’t see anything indicating that ETFs would be effected or especially disadvantaged.
The provision would prevent investors from minimizing taxes by choosing the specific shares that are being sold when they sell part of a position. Instead, investors would have to sell their oldest shares first.
If the provision becomes law, “markets will work less well. Our fund managers will have their hands tied, and our shareholders will owe more in taxes,” said Thomas Faust, chief executive of Eaton Vance Corp., a fund firm that manages more than $419 billion.
The provision included in the Senate bill requires investors who are selling partial positions to assume that lots of securities bought at different prices are sold on a “first-in, first-out” (FIFO) basis. The provision would affect “passive” index funds and exchange-traded funds, as well as actively managed ones.
“Vanguard is concerned with language that requires funds to sell their oldest shares first—mostly likely increasing significantly the amount of taxable distributions made to investors every year,” a Vanguard spokeswoman said in a statement.
So the fund companies are against it of course because paying more taxable gain distributions means 1) money leaving their funds, so fewer fees, and 2) given taxes will be due for the individual on these payments, they can’t hope to get all of them back even if the people elect to reinvest the net amount (and many may not reinvest at all, or choose a cheaper index fund than their current investment, etc).
As for ETFs, they are technically impacted, but given ETFs generally don’t buy and sell stocks (mostly that’s done indirectly via the exchanges with the market maker APs), i don’t think it will matter. Rarely an ETF will buy or sell if some change is made to the index they track, like if a stock is added or dropped from the S&P500. FIFO rules wouldn’t matter for new purchases and things that get dropped nearly are always down (they’re being removed for low market value), so those would be realized losses rather than gains. Plus all the churning of shares by the ETF redemptions will likely unload any appreciated shares in the meanwhile.
In short, I can’t see any reason to be worried, and if anything, this may make the tax advantage of ETFs even more stark compared to the new FIFO disadvantage the bill would impose on mutual funds.
I think the reason you mention is almost certainly the reason they’re using it here, and probably the primary reason for using it most of the time. Another reason they add sunset clauses is because it’s very difficult to take away a tax benefit, but it’s politically easier to let it sunset in case it doesn’t work out as expected. It puts less pressure on future legislators to decide how they want to deal with a bad provision.
[quote=“xerty, post:397, topic:1661, full:true”]
If you can find a link to any discussion of the FIFO tax accounting on ETFs, I’d be happy to read it.[/quote]
Unfortunately, what I was viewing was all the way live, so I can’t help you there. I only originally paid attention because they were discussing, as I posted, yet another tax increase within the so-called “tax cuts”, when they then went on to the impact on mutual funds, and then ETFs. I don’t own any ETFs, so I don’t personally have a dog in that hunt.
“The Senate Finance Committee has decided that a little-known provision that would change tax rules on certain securities sales shouldn’t apply to mutual-fund firms. Even so, it would still apply to individual investors.”
Geez, YET ANOTHER tax increase within the so-called GOP “tax cuts”.
They nixed tax-free 1031 Swaps (Exchanges in Kind), routinely utilized for planes, tractors, semi-trucks, and art, to name just a few. Guess Who is exempted from the tax? Why REAL ESTATE DEVELOPERS and REAL ESTATE INVESTORS, of course. #SAD!