Investing With AI

Comment on “Systematic Investing Offers More Discipline But Also More Challenges,” in Dispatches in the December 2023 AAII Journal:

For any computer program to work, including artificial intelligence (AI), the correct assumptions and goals have to be put into the system. To the extent they rely on conventional wisdom or academic notions of how investing should be done, I have no fear of them replacing us old-fashioned individual stock pickers anytime soon.
—Robert A. from North Carolina

End-of-Year Tax Planning

Comment on “The Individual Investor’s Guide to Personal Tax Planning 2023,” by AAII Staff, in the December 2023 AAII Journal:

I appreciate the enormous effort the AAII staff devotes to getting this annually updated guide to AAII members in a timely manner so we can make plans and decisions. I rely on this product to organize and explain the key changes that will impact my future tax planning and year-over-year changes to anticipate. Thanks to your efforts, I can almost make sense when I talk to my accountant. I estimate that the things I learn from this one product save me more than my membership costs.
—Barry J. from Texas

Using Qualified Dividends

Comment on “Guide to Tax on Your Personal Investments 2023,” by AAII Staff, in the December 2023 AAII Journal:

What a great discussion on qualified dividends, with further information on their interaction with margin accounts. I use Robinhood as my brokerage (yes, I like the interface but am older than 50), so it gives me a choice of whether to lend the shares out—understanding the treatment under this arrangement may mean I forgo the pittance (probably $5.00 this year) for share lending.
—Robert R. from Texas

Limiting Taxes Through Asset Location

Comment on “Tax-Savvy Strategies for Your Stocks, Mutual Funds and ETFs,” by Charles Rotblut, CFA, in the December 2023 AAII Journal:

Regarding the statement: “If you desire to limit your tax bills as much as possible, consider holding dividend-paying stocks in retirement accounts. (It is also a tax-savvy move to hold taxable bonds, whose interest income is subject to marginal tax rates, in retirement accounts.)”

I find that this is not entirely true, at least as it relates to the taxable brokerage account, which I assume this article is about. If you really want to limit your tax bills, you would not put any bonds or dividend-paying stocks in your taxable account.

While there are no exchange-traded funds (ETFs) that I know of with a focus on this strategy, it is easy to build one yourself by picking “good” stocks from an index like the S&P 500 that doesn’t pay dividends. Doing this in your taxable account then gives you more control without a noticeable tax effect, unless you need to spend some of the account, in which case long-term capital gains are taxed the same as dividends, but generated only when you need the money. It also allows you to use this “taxable” bucket as a place to stash money to be inherited without it affecting your current taxes.
—Dave G. from Texas

How to Gift Tax-Free

Comments on “11 Tax Actions to Consider Before Year-End,” by Charles Rotblut, CFA, in the December 2023 AAII Journal:

I don’t understand the gifting comment, please clarify. Aren’t gifts always tax-free? Or is 2023 a year where you can gift and not make it count toward the lifetime exclusion? Is that what you mean by tax-free?
—Todd S. from Pennsylvania

What it means is that you can gift $17,000 to any individual, not have it count against your lifetime estate tax exclusion and not have to file a gift tax return. Give $17,001, and that $1 counts against your lifetime estate tax exclusion, and you must file a gift tax return (Form 709) with your Form 1040. Of course, no gift tax is due until you exhaust your lifetime estate tax exclusion.
—Sam F. from Michigan