Hi all,
Some private investors may be considered profesional investors and thus, taxed on capital gains, based on different criteria:
- Securities are held for at least six months before being sold.
- Capital gains contribute less than 50 percent of net income.
- The transaction volume during a calendar year does not exceed five times the investment portfolio value at the beginning of the calendar year.
- It is invested only with its own money, not with that of others (not even with outside capital from banks in the form of a loan).
- No trading in derivatives (e.g. warrants), except to hedge risks.
However, if you are a long term, buy & hold investor, after many years without selling, amount invested might become material, and if everything is sold at once, and capital gains realized at once, one might be considered as professional based on point 2.
Let’s look at one example:
CHF 102k invested in a stock: 6000 shares bought at CHF 17 at beg of year 1.
End of Year 1: share price = CHF 20
End of Year 2: share price = CHF 23
End of Year 3: share price = CHF 26
End of Year 4: share price = CHF 29
End of Year 5: share price = CHF 32
End of Year 6: share price = CHF 35
End of Year 7: share price = CHF 38
End of Year 8: share price = CHF 41
End of Year 9: share price = CHF 44
End of Year 10: share price = CHF 50
All shares sold at the end of year 10 for CHF 300k, realizing a capital gain of almost CHF 200k.
Assume an annual income of CHF 150k from work. Capital gains at year 10 are way higher than annual income, so there is a risk of being considered professional investor, and pay capital gains taxes on CHF 200k.
Does it make sense to reset the cost basis each year, meaning selling all shares at the end of the each year and buy them back again at the beginning of the next one, this way realizing smaller capital gains each year which are lower than 50% of annual income from work to avoid the risk of being considered a professional investor?
(Assuming small transactional fees to be paid to broker).
Thanks!