1076: Specific Identification of Shares by The Mad Fientist on How To Reduce Your Tax Burden on Taxable Investments

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🗓️ 19 February 2020

⏱️ 8 minutes

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Summary

The Mad Fientist on specific identification of shares. Episode 1076: Specific Identification of Shares by The Mad Fientist on How To Reduce Your Tax Burden on Taxable Investments The Mad Fientist analyzes the tax code and looks at personal finance through the lens of early financial independence to develop strategies and tactics to help you retire even earlier. Most personal finance advice is geared towards people retiring in their 60s or later and doesn’t apply to those of us pursuing early financial independence. The Mad Fientist is focused on providing advice and innovative tax-avoidance methods specifically for people wanting to break away from full-time employment very early in life. He also hosts the Financial Independence Podcast. The original post is located here: https://www.madfientist.com/specific-share-identification/ Visit Me Online at OLDPodcast.com Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	This is where I am Dan, I'm your host here on
0:02.0	episode 1076, specific identification of shares
0:06.3	by the Mad Fiantist of Madfiantist.com.
0:09.9	And I am Dan, I'm your host here on optimal finance daily, and this is where I read to you from some of the very best personal finance blogs on the planet.
0:17.0	For now, let's get right to the post as we start optimizing your life. Specific identification of shares by the Mad Fientist of Madfientist.
0:31.0	com
0:32.0	A few months ago I wrote a couple of articles about harvesting investment gains and losses for tax purposes.
0:38.0	In the Tax Loss Harvesting Post I described how it can be beneficial to sell investments for a loss in order to use that
0:45.0	loss to reduce your taxable income. Conversely, in the tax gain harvesting article, I showed that in some situations
0:52.2	it may be a good idea to sell your investments for a gain to increase your cost basis.
0:57.0	What I didn't tell you is how to structure your taxable portfolio so that you can easily sell the investments that have depreciated in some years and
1:04.6	those that have appreciated in others.
1:07.2	Today I will do that.
1:09.3	Cost basis.
1:10.9	When you buy an investment, the price you bought the investment for is the cost basis.
1:15.0	Note, the cost basis can be adjusted for stock splits, dividends, etc.
1:20.0	The cost basis is important because it is used to calculate how much tax is owed when an investment is sold.
1:26.0	Accounting methods
1:28.0	When you sell an investment, there are various accounting methods that can be used to determine the cost basis.
1:33.0	The three types that Vanguard offers are average cost, FIFO, first in, first out, and specific identification.
1:40.0	To illustrate the differences between these various methods, let's create an example scenario to play around with.
1:46.0	Assume you purchase a hundred shares of investment X in your taxable portfolio every year for three years.
	...

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