Capital gains generated through securities trading do not account for a significant portion of your basic income. The rule of thumb: Capital gains should account for less than 50 percent of your net income.
It seems that this rule could be easy to break if one funds FI by selling parts of an ETF portfolio. Does anyone have experience with this rule? Is it rigorously enforced or will the authorities look at someone in such a situation and decide that slowly selling assets isn’t a professional trader, at least in spirit?
Surely this depends on the size of the pot? If one had a pot of 2M CHF a 4% withdrawal rate is 80k CHF/year. Depending on how much additional income one has from dividends etc the capital gains could comprise > 50% income. Or is there something fundamental I’m missing here?
What you’re missing is that the typical dividend yield is 2% per year, and you will pay tax on it. So additional 2% from sales will not be enough to trigger that rule.
No, on the size of dividends. They are about 2% now, if this makes up less than 50% of your yearly income+gains, it would imply you made another 2+% by selling stocks, or over 4% withdrawal in total.
Just one thing as an afterthought: im pretty sure the 4% rule applies to the initial savings at reaching FIRE. So I can imagine that when the markets shrink by 50%, then 4% might not be enough, so you need to sell more.
Otherwise i could tell you that each year you can withdraw 99% of what you have left, and youre mathematically guaranteed never to run out of money
In comparaison to other countries, Swiss tax laws can be interpreted. Depending of the case, canton, tax office employee, a closed/similar situation could result of two different treatments.
Based on the custom until now, the likelyhood that a retire only selling ETF on a regular basis (non linked to the market condition) would be considered as a pro trader is low. If you have a legal insurance, you can always dispute the tax administration decision in court.
Hey everyone! New member, long-term lurker (registered to ask exactly about this, smart forum function guided me here before posting…)
Regarding the question if somebody who is retired might face professional trader tax status and therefore be taxed on capital gains: I also read the relevant guidelines (Kreisschreiben 36) as such that living off your principal is an indication, but in no way would trigger that tax status.
Does anyone have any practical first/second-hand experience on this? Has anyone ever heard details of any professional trader ruling at all? Seems to be extremely rare to find anyone with that status in general…
Hey!
In the last 6 months I’ve been consistently buying Vanguard ETFs. Initially I started with VT and then, after reading more, I figured I might be better off with VTI + VXUS, so I started buying VTI. Now I think I should get rid of the VT I have and switch to VTI + VXUS.
I read somewhere that you can be classified as a professional trader if you buy and sell the same stock in less than 6 months. That can’t happen if I sell the VT I bought in the last few months and buy VTI + VXUS instead, right?
I’m sure you can buy and sell some stock without getting classified as a pro trader. Otherwise everyone who maybe played around with their ebanking would be…
The reasonable criterium is if you could permanently live from your shortterm stock speculations, without any other income.
Just do it. Adjusting one’s investment strategy once in a while (even if last purchases were only recently) falls short of being a methodical approach that a professional investor would adopt.
Had same concern here. I was thinking about selling a big line but I bought it 2 months ago and I fear it can conduce to categorize me as a professionnel.
It’s hard being an active stock picker with this law, keep your stock 6 months when there is bad news or bad result could pretty unproductive.
I hope administration can’t consider you as a professionnel and tax all your gains when you are a early retiree and live only on your gains.
Let’s suppose you are extremely lucky (and clever for finding the right stocks ) and your net win is +2M CHF after 10years. If you didnt close your position all this 10years long, closing it would mean it’s your only income. The law is pretty fuzzy.
There are more criteria involved than just the length of time which you hold securities for i.e. how often you do this, the amounts involved, the capital gains achieved, whether you invested your own money or other people’s money, and others. Holding for shorter periods occassionally shouldn’t trigger an audit unless the capital gain is substantial.
Each tax office decides themselves when to classify someone as a pro trader. On a federal level there is a guidelines with 5 criteria that if you violate none of them you will never be classified as a pro trader. Those are:
You hold securities for at least 6 months before you sell them.
The transaction volume of all of your securities trades combined (total spent on purchases and total earned on sales) is not higher than 5 times the total value of your securities at the start of a tax year.
Capital gains generated through securities trading do not account for a significant portion of your basic income. The rule of thumb: Capital gains should account for less than 50 percent of your net income.
You use your own assets to finance the purchase of securities. Or: Taxable returns like interest and dividends are higher than interest owed on loans.
If you invest using derivatives – and options in particular – these can only be used to hedge your own securities.
But it’s not a black and white thing. No sane tax office will categorize you as a professional trader for violating 1 or 2 of those criteria in a single year. I know people that have already fired and violate multiple of those criteria each year and are NOT classified as professional traders. It all comes down to your tax office and the one making the decision.
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