Capital Gains Harvesting - Understanding?

[gotmilklol]

Hi GCC Community / Jeremy,

I heard GCC on ChooseFI's podcast. I was hoping you could potentially assist me on understanding capital gains harvesting a bit better. I am a single guy that makes approx. 86k (2 incomes one is a side job that pays 14K). I max out 401k (18K). I contribute to IRA (unfortunately Roth). I have stock in ESPP. I plan to contribute to a taxable brokerage account (maybe 10K) with Vanguard. I am trying to wrap my head around my marginal income tax rate and if I can take advantage of capital gains harvesting in my current state (assuming income, etc doesn't change). Normally, I am able to understand this stuff pretty quickly (Roth Ladder, etc), but this term just hasn't clicked with me (hopefully someone can 'dumb' it down for me). Apologizes if this is a dumb question. Thank you GCC Community / Jeremy for this great community you have set up.

[gocurrycracker]

The tax free dividend / capital gain space is about $50k for single, $100k for MFJ. You won't be able to harvest gains tax free while working.

The gain harvesting process is something like this:

You buy $10k of VTSAX. It doubles in price over the next few years.

You make $40k this year because you quit your job, and decide to harvest $10k of capital gain.

You sell $20k of VTSAX and then buy it back. You have a $10k taxable capital gain. The tax rate is 0%, because total income is less than ~$50k.
Your new basis is $20k.

[Jim]

The tax gain strategy is hard to pull off during your working years as most people have too much earned income to be able to do so.  Fortunately, I read GCC's post on it and was able to pull it off last year for a modest ~$600 capital gain.  Mostly because I have a moderate income and am MFJ with 2 kids. 

My question for Jeremy is I have been using ETFs at Vanguard since I can easily buy and sell in real time for this annual event, but the purchasing of shares throughout the year can be a hassle as I have to purchase whole shares and have to deal with bid/ask spreads.  Do you just buy the index funds (non-ETFs) and then how do the mechanics of the gain harvesting work?  Do you wait a few days for everything to settle and buy a different but similar fund (to avoid trading back in to the same fund before 60 days)?

[gocurrycracker]

I only use ETFs.

I've never considered bid/ask spreads or whole shares a hassle. Just put it on autopilot and ignore it.

[Jim]

Thanks Jeremy.  I'm guessing when we are saving a large percentage of income the normal "hassles" others consider is inconsequential for the FIRE crowd.  Appreciate the forum.