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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11122
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I inherited a living trust stock account, under 5 mil, no

Customer Question

I inherited a living trust stock account, under 5 mil, no tax, ive left it alone for a few years and until 2015 it did pretty good, of which I paid a lot in taxes, beginning 2015 for argument sakes was worth 500k, but the end of the tax year, lost 150k, but earned 50k in dividends, still a 100k over all loss, but my accountant says I have to pay tax on the dividends. this makes no sense to me to even stay in the market if I'm loosing money and still have to pay tax . I have no other income and am retired at 60, living off my previous savings.could you help me understand this?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi, I can help here.

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I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

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This is a common phenomenon in years before an election where uncertainty rules.

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First, you have only lost money if you sell now, at the low point, and lock in what (once things normalize) will turn out to have been a loss on paper.

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If you stay put, you'll be IN the market for the inevitable "snap back" up that always occurs, perversely, but understandably, after the worst of times.

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Now there are two attributes of stocks that generate returns; (1) capital gains - increases in the price (value) that - when looking at market cycles of 6 years or so, have always historically generated gains.... and (2) the dividends that these companies declare from their profits.

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The fact that you do have dividends shows that the companies ARE profitable, but that the very emotionally driven market we have today (and will likely continue to have until after election time) has prices depressed.

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But to say that you are losing money (when in reality the prices are simply low right now - for more emotional reasons than economic) is not really accurate... you only lose money if you sell while things ARE low.

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I would encourage you to look at this historically ... Pre-election years (especially when there's a good deal of uncertainty) are historically bad performers ...but then the years AFTER such an election (regardless of who wins) tend to be very good years.... Why? Because ALL of the institutional money that's now on the sidelines, will finally know (again, regardless of what the political configuration ends up being) what policy is going to look like going forward.

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I would submit to you that if your potrfolio reflects companies that are productive enough to be declaring dividends, the currently depressed value of those stocks will return (as it always does) when (1) policy becomes predictable and (2) the oil markets normalize in 2017.

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Oil Supply (we've NEVER, EVER pumped and exported the kind of oil we started pumping this year) is expected to finally equalize with demand in 2017 and by early 2018 we'll see demand start to outstrip supplies again bringing oil, chemicals and plastics back to normalcy.

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One final submission here.... The average equity equity fund has performed at 10.9% over the last 10 years. The average equity fund INVESTOR? (2.1%)

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Why, because of the fear and emotion that are tugging at you right now, causing average investor sell at the lows and speculate (buy-in) at the highs.

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If you can muster the discipline to hang in there until mid 2017, I would submit that you'll be glad you did.

Expert:  Lane replied 1 year ago.

I hope this has helped.

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Please let me know if you have any questions at all.

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If this HAS helped, and you DON’T have other questions … I'd really appreciate a positive rating (using the rating request, faces, or stars on your screen)

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That's the only way I'll be credited for the work here.

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Thank you!

Lane

I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

Expert:  Lane replied 1 year ago.

Hi,

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I’m just checking back in to see how things are going.

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Did my answer help?

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Just to make sure you saw the technical part of the answer - You pay tax on dividends because the dividend is a separate taxable event. But if you sold the position (although might not make sence in the long haul) THIS is where you'll manifest (realize) a tax LOSS.

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If this HAS helped, and you DON’T have other questions … I'd really appreciate a positive rating (using the rating request, faces, or stars on your screen)

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That's the only way I'll be credited for the work here.

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Thanks you,

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Lane

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