Today we'll jump into the,
uh, capital gains.
Like, it's related to capital gains, but we're going to talk about the words
realized versus unrealized,
and how important it is for your tax planning.
So it's not, so there are, they are very specific,
they have very specific meanings when it comes to your taxes and like what's
happening with it. So it's, it's more complex than just like,
oh, I didn't realize I had the gain on that,
on the stock I sold, or that I didn't realize. I didn't realize I
had the, uhm, the gain on the crypto that I sold.
So realized versus unrealized,
uhm, it's specifically in the tax law where something is,
when something is realized, that means you've sold it.
Like uhm. Maybe it's not the best word to explain it,
but that's the way it's written in the tax code. So if you've sold
something, that means you've realized either whether it's a gain or a loss,
you're still realizing it. It's just like the transaction that triggers,
sometimes I'll call it like you're triggered. Triggering the taxable event,
whether it's positive or negative, but that's the realization you're realizing it.
And when it's unrealized, that's helpful for like tracking the value of your investments.
So if it goes up, so say you bought stock for a thousand dollars
today. It goes up by 10% tomorrow and you don't sell it.
That's an unrealized gain of 10%.
It's not of, of a hundred dollars.
It doesn't hit your tax return. It's more of just like tracking the value.
So think of unrealized gains. So you're like tracking the value and you didn't
actually realize the value until it sold and you've converted it back to cash.
So that's, that's really the gist of it.
So when it comes to tax planning. So if you are,
so we're going right now, we're in June, 2025 partway through the year as
you're doing tax planning. Um,
and it'll get a lot more important later on in the year,
but we've, we've talked about those tax projections.
We start doing tax projections. It's tax plan,
tax planning. If you're, if you have a financial advisor,
or if you have brokerage accounts, or if you're a crypto,
uh, crypto investor, or you've sold something like a piece of real estate,
you need to track your gains separately.
The realized versus the unrealized, because those are actually going to go in your
projection sheet. Like, you go,
okay, well, I've got a short term gain, or long term gain,
you also need to track that. But if you see that they're realized,
if you're looking at quarterly or monthly summaries,
put those in one category. And then unrealized,
that's more of like a nice to know thing.
Nice to know what the value of your stock is.
But if you haven't sold anything, uhm,
you might still have dividends. You might have interest income and dividends that are
just being reinvested automatically. So, watch. But if you haven't sold anything,
you might not even have any realized gains.
So you might not even, you might not even need to worry about those
at all. But there is some something to think about.
You may have seen this in social media or in the news.
But there's a pretty big uproar about it. Of the government potentially taxing
unrealized gains. So now that we've talked about what that means.
So just imagine being taxed on something that you never sold.
So back in 2025, when they were starting to propose some tax law changes.
There were some Biden tax law proposals where they were potentially going to tax
some unrealized gains on,
they were, they were calling it like the billionaire tax,
but you'd have to be over a certain threshold of, of net worth.
But it would be like. It's like Elon Musk is a big target,
of course, right? So, Elon Musk say the value of his stock is worth
a billion dollars in Tesla.
It's way more than that. But a billion dollars in Tesla today,
and then say a month from now, it's worth two billion dollars.
Like, it's just the value of the stock.
Say, he never sells it, but it just goes up in value by a
billion. So, you have a billion dollars of unrealized gain under
some tax law proposals that growth and value,
even though it wasn't sold. No cash was liquidated.
Like, there's no cash to pay taxes. By April 15th next year,
potentially, if they passed a law like that, they would have to pay tax
on that growth that was never sold. And the tax laws wouldn't get pretty
complicated. Because then they'd be able to take some deductions in later years to
offset taxes that they had paid. We think they never made a law.
But that's, that's why people thought it was,
some people thought it was a great idea. They wanted billionaires to pay their
share. Some people. Myself included,
I think it's a horrible idea, if something is not sold.
Uhm, another example of this is,
and we've actually had some clients run into this issue,
is like an estate tax issue. So if someone,
if someone passes away with with. Estate,
like with the net worth of over right now,
it's about $14 million. So it's high.
But say if someone passed away with. Like $20 million of value in
an all their estate. The estate tax.
Mout where there's no estate tax is 14 million.
So all the excess above and beyond that is 20.
In some cases, they're that wanted to pass some tax laws where if you
died with that amount of value. Even if you didn't sell anything,
it's just some. And if died with that value,
you'd have to pay that estate tax, which is 40%.
And it'd be 40% of the excess over the 14 million.
So in that example, 40% of 6 million dollars.
If we got almost a 3 million dollar tax bill.
Where's the cash coming from? It's, if it's not sold,
there's, the cash isn't coming from anywhere. So that's,
those are like, those keywords now that you've,
I've, I've explained or not, you've heard, like, realized versus unrealized.
And when you see it in the news or people freaking out about it,
you might. Start to pay more attention to it of,
like, why realized versus unrealized makes sense.
Or, or why it could draw some,
uh, or create some issues if we're paying tax on unrealized taxes or
unrealized gains. Um,
so remember. Realized, realized gains.
Put those into your tax projections for the year.
If you're working with a tax advisor,
make sure we're including those in your projections.
Unrealized is kind of nice to know.
Track that for your net worth. Like in your net worth track.
Or you can, you can track it there. Uhm,
but until you sell it, you don't need to worry about it.
And then, as of right now, there's no tax on unrealized gains.
You don't have to worry about it unless you're over.
Your state is over about that.
You should be doing some planning to account for that
so you don't have to pay tax on something that's not sold.
So that is it for day. The comparing the realized versus unrealized gains and
some, and some nuances and strategies around that.
See you later.
