Lend Academy Network Forum

Lending Club Discussion => Investors - LC => Topic started by: bassfamily on May 14, 2013, 07:48:56 AM

Title: Is a Taxable Account Even Worth It?
Post by: bassfamily on May 14, 2013, 07:48:56 AM
I was reading on the blog post about taxes. People were saying that since they got taxed on the full amount of interest, but couldn't directly deduct the charge offs against it (since they were capital loss) they ended up paying way more in taxes than they thought was worth it. I don't have an IRA, but I do have a taxable Lending Club account with about $3,000 in it. I was planning to add more but didn't know if it was worth it after taxes.
Title: Re: Is a Taxable Account Even Worth It?
Post by: Fred on May 14, 2013, 08:20:14 AM
If you could keep a NAR (which includes charged-off losses) above a certain level (e.g., 6%), I'd say an LC taxable account is worth it.
Title: Re: Is a Taxable Account Even Worth It?
Post by: Show Me The $ on May 14, 2013, 10:53:55 AM
Have to agree with Fred. Surely even 4% taxable is better than zero....or say 1% in bank which is taxable. If you are not achieving these minimal level returns, with the tools out there, I think you are doing something wrong or are not diversified. I am NOT a pro but this seems highly unlikely scenario that taxes would affect your decision to invest or not, compared with savings account etc. Ask the forum, it is very helpful, and fun  8)
Title: Re: Is a Taxable Account Even Worth It?
Post by: New Jersey Guy on May 14, 2013, 11:52:32 AM
"I am NOT a pro but this seems highly unlikely scenario that taxes would affect your decision to invest or not, compared with savings account etc."

I gotta agree with Fred and Show Me.  I mean, stuffing your cash under your matress is a good way to avoid taxes, but I'm not sure what kind of return you'd make.

In my opinion?  I'll work to keep my NAR up.  I'll let my accountant figure out how to keep it.
Title: Re: Is a Taxable Account Even Worth It?
Post by: hoosierlender on May 14, 2013, 09:19:40 PM
It is all relative to other options.  If the returns are above 7% after taxes with far less volatility than stocks, I would argue it is definitely worth it.
Title: Re: Is a Taxable Account Even Worth It?
Post by: ee1x on May 15, 2013, 01:39:47 PM
Agree with all of the above. I only have taxable accounts on both LC and Prosper right now but I am planning on opening some IRAs soon to get the additional benefits provided by those. I have to say it is nice to know that with a taxable account I can have immediate, no-penalty access to my cash flow if necessary.
Title: Re: Is a Taxable Account Even Worth It?
Post by: rajuabju on May 23, 2013, 10:57:55 AM
Also depends on your tax bracket (both Fed and State if applicable).

I'm in California, and I'm in the max tax bracket. Even then, the after-tax returns I'm making on LC are far higher than almost anywhere else I could put my money. I keep my IRA stuffed with other investment opportunities.
Title: Re: Is a Taxable Account Even Worth It?
Post by: berniemadeoff on May 23, 2013, 11:56:35 AM
Max tax bracket in CA.. that 10.3% over $2m for couples.  You must be an early FB employee selling stock options.   ;)
Title: Re: Is a Taxable Account Even Worth It?
Post by: rajuabju on May 23, 2013, 12:04:13 PM
Sorry, forgot about the 1% EXTRA surcharge (not a "tax" remember) for incomes above $1M. I'm in the 9.3% bracket.

If I was an early FB employee cashing out, I'd probably renounce citizenship and move like Saverin.
Title: Re: Is a Taxable Account Even Worth It?
Post by: bozzi on May 23, 2013, 12:49:11 PM
Sorry, forgot about the 1% EXTRA surcharge (not a "tax" remember) for incomes above $1M. I'm in the 9.3% bracket.

If I was an early FB employee cashing out, I'd probably renounce citizenship and move like Saverin.

And you are full of it.  The current top tax bracket in CA is 13.3% which includes the 1% mental health tax.  Also, it's over 1 mil that it kicks in for couples, half of that for single people.
Title: Re: Is a Taxable Account Even Worth It?
Post by: berniemadeoff on May 23, 2013, 01:20:21 PM
Yes I was mistaken the tax about the highest bracket.  It keeps going up so fast I can't keep track.   :'(

All in I'm taxed at ~50% so yes I'm getting screwed (9.3+35+3.8%). But look at it this way, a 5% after tax yield is better than just about anything out there with reasonable credit risk, particularly considering the diversification benefits, etc.  The only thing that's close is Puerto Rico munis... but we've already talked about that in another thread.