Are You a Tax-Smart Investor?  When evaluating investment performance, many people focus on the return of individual securities. Naturally, investors always hope that the securities they own will eventually be sold for more than the original price they paid. But to focus solely on market prices and returns is a mistake. Potentially, a very costly mistake. When you stop to ponder that the IRS will take up to 35% of your investment gains, a 10% gain suddenly doesn't seem as exciting. It's at this point that the power of tax-smart investing begins to make itself apparent. Tax-smart investors always know how their portfolios are performing - in after tax dollars, which is what really matters. Traditionally, most tax-smart investing was limited to year-end portfolio clean-ups. Now GainsKeeper has made it possible for tax-smart investors to tap into tax-efficient trading strategies to maximize their after tax investment performance throughout the year. GainsKeeper is leading the movement to tax-efficient investing by providing automated accounting and analytical tools to help investors become smarter about the impact of taxes on real investment returns. Below is a picture of one GK tax-smart tool and the investing concepts you leverage with GainsKeeper’s service.        Realize a short-term loss before it becomes long-term.  Since the tax rate for ST gains is significantly higher than that for LT gains (up to 35% versus 5-15%), it's often wise to realize losses on lots before they become LT holdings, thereby lowering your ST gains. In contrast, you should wait for a winning position to become a LT holding to take advantage of the lower tax rate. The tax savings can be significant. Sell partial positions using specific ID. Many investors fail to maximize the benefits of selling specific lots. If you hold multiple lots of the same security, selling only part of the position, without specifying which part, will result in FIFO accounting (First-In, First-Out). However, in most instances it's wiser to sell shares that have the highest unit cost, thereby minimizing gains and the tax burden. Even mutual funds can be sold using Specific ID rather than FIFO or Average Cost. Avoiding wash sales. A "wash sale" occurs when a security is sold for a loss and repurchased within 30 days of the sale. A wash sale is usually triggered by a "buy" transaction, but complicated tax rules say that a wash sale can even occur when selling a security within 30 days of buying that same security. GainsKeeper tracks wash sales when they occur and helps investors avoid them in the future. Adjusting the cost basis of long-term investments. Investors often hold securities that they believe will perform well long-term, but currently have a short-term loss. By doubling up your position in that security at today's lower price, and waiting more than 30 days to sell the original lot, you can effectively lower your cost basis without incurring a wash sale. Offset capital gains. If your portfolio has both realized gains and unrealized losses, selling some of those unrealized losses can substantially reduce your tax liability. In fact, since the IRS allows investors to write-off up to $3,000 in losses, it may still be wise for you to realize losses if you have net losses but haven't yet reached the $3,000 threshold. Realizing unrealized gains without any tax consequences. Sounds like a dream, doesn't it? But, if you have more than $3,000 in realized losses you can take gains without incurring cap gains taxes. GainsKeeper's reports make this easy. Gifting a stock? Always gift stock lots with lower cost basis and short-term (if possible) and keep the higher cost, longer-term lots. This will save you real tax dollars in the long run. Time Value of Money. A basic principle of finance is "A dollar today is worth more than a dollar tomorrow." The tax version of this principle is "Paying taxes in the future is better than paying them now." If possible, hold off from taking gains until next year. That way you can defer taxes on that gain for one full year. Note: Do not allow tax issues to be the sole criteria in making investment decisions. They are just one of the considerations to be made when planning and executing your investment strategies. © 2024, Wolters Kluwer Financial Services WEB1  GainsKeeper® Privacy Statement