Considerations
GainsAdvisor helps maximize after-tax returns. Its 'Sell Grade' metric reflects the tax consequence of selling an investment. The higher the Sell Grade value, the better the after-tax return. GainsAdvisor assigns a Sell Grade to each of your holdings and then ranks them from largest to smallest.
A Sell Grade greater than 1.0 will save you tax dollars.
A Sell Grade of 1.0 is neutral and has no tax impact.
A Sell Grade less than 1.0 will cost you tax dollars.
The 'Sell Grade' is the result of GainsKeeper's proprietary algorithm. The algorithm considers each tax-lot's adjusted cost basis (the original cost basis adjusted for all wash sales and/or corporate actions), current holding period (long-term or short-term), current market price, your personal tax rate, and previous realized gains/losses including the character of those gains and losses. In this way, the Sell Grade is customized to each individual's portfolio and tax situation.
Click any of the terms below to view a detailed definition:
To simulate the after tax impact of selling, select the Simulate Sell checkbox next to the security name. The simulated results are displayed and are combined with your other Realized Gain/Loss figures to yield the total tax payable or tax savings. GainsAdvisor helps you trade smarter by simulating the tax implications before you place a trade with your broker.
By simulating sells you can see the tax implications before you trade. Select a checkbox to simulate a sell and the Simulation Results will detail your total proceeds and the tax effect of that sell.
Total Results include current realized gains and losses; prior year losses being carried forward, and sell simulations.
Gain/Loss includes your current realized gains and losses and estimated gains and losses from your sell simulations. To view current year gain/loss details, select Realized/Sell Activity from the Portfolio section under GainsTracker.
Tax Impact is the amount of money you will owe (or save) in taxes from your trading activity. Short term gains are taxed at your personal tax rate and long term gains are taxed at a maximum 15%. The IRS allows you to write off up to $3,000 in losses annually, limiting your tax benefit to $3,000 times your personal tax rate.
The IRS allows a maximum of $3,000 net capital loss write-off against ordinary income. Any losses in excess of $3,000 may be carried forward to future years. Depending on your investment philosophy, you may choose to accrue additional losses for future benefit, or recognize gains tax-free to offset your loss carry forward. Many investors try to end the year with a net $3,000 loss to maximize the tax savings, but will try to minimize their loss carry forward due to the time value of money. For example, if you have $9,000 worth of net losses you are carrying forward, then you can recognize gains up to $9,000 in the same tax year, without incurring additional tax payments.
The Total Proceeds sums the proceeds generated when you select a checkbox to simulate a sell. This is especially helpful if you are trying to raise a certain dollar amount.
Note: Proceeds and Gain/Loss information are based on market prices that are delayed 20 minutes.
Click the link below to view an example of how to use the GainsKeeper sell grade.
Example - Which Security should you sell to raise $2,000?
Most investors tend to sell their winner when looking to raise money. Furthermore, many investors have the 'look what I've made in such a short period of time' mentality - leading them to sell large short-term gains first, but never recognizing that this can be a costly decision from a tax perspective.
In the following example, we'll assume each security has equal underlying risk and investment qualities. You need to raise around $2,000. Which security should you sell? The average investor would likely sell either Ebay or CYTC.
|
Security |
Symbol |
Shares |
Cost/Basis |
Market Value |
Gain/Loss |
% Return |
Short/Long |
Sell Grade |
|
PSI Net |
PSIX |
1,000 |
$11,500 |
$2,200 |
($9,300) |
(80.9%) |
ST |
12.68 |
|
Ebay |
EBAY |
30 |
$750 |
$2,200 |
$1,450 |
193.3% |
ST |
0.73 |
|
CYTC |
CYTC |
100 |
$1,000 |
$3,750 |
$2,750 |
275% |
LT |
0.84 |
|
Ford |
F |
100 |
$4,800 |
$3,750 |
($1,050) |
(28%) |
LT |
1.25 |
Selling Ebay would meet your $2,000 cash requirements since its market value is $2,200. Unfortunately, you probably made this sell decision because it harvested a very healthy $1,450 profit on a $750 investment. The Sell Grade metric identifies the tax implications of selling each security and enables you to avoid this mistake. The Sell Grade will identify the tax-smart sell decision, thus maximizing the after-tax dollars you put in your pocket.
What are the after tax implications of selling Ebay?
Selling Ebay would generate proceeds of $2,200 that could be spent now. Assuming a 31% marginal tax rate, the $1,450 short-term gain would result in a $450 tax liability. The investor is left with a $1,750 after-tax return ($2,200 - $450).
Instead of selling Ebay, an investor using GainsAdvisor's Sell Grade would see the benefits of selling PSI Net. Similar to Ebay, proceeds from this sale would be $2,200. But this sale will generate a short-term loss of $9,300 making it exempt from taxes. Furthermore, $3,000 of those losses could be offset against ordinary income - generating a tax credit of $930. The remaining $6,300 loss can offset current gains, or be carried forward to offset future years' gains and ordinary income.
The tax credit of $930 added to the $2,200 proceeds leaves the investor with $3,130 in after-tax dollars. And that doesn't include the tax savings that can be obtained from the remaining $6,300 in losses; the remaining losses can be used to reduce future tax liabilities on future gains or ordinary income.
|
Security Sold |
Proceeds |
Tax implication (liability) or credit |
After-Tax Dollars Raised |
|
Ebay |
$2,200 |
($450) |
$1,750 |
|
PSI Net |
$2,200 |
$930 |
$3,130 |
By using the Sell Grade to maximize after-tax returns, the investor increased the amount of money raised by almost 80% ($1,750 vs $3,130). GainsAdvisor's Sell Grade enables you to identify which securities (and even specific tax lots of the same security) to sell. By using the Sell Grade, you can minimize tax liabilities and maximize after-tax returns.
Summary of tax-efficient trading:
It is often better to sell and recognize losses instead of gains.
Short-term losses are better than long-term, but LT gains are favorable to ST.
Before you trade, your analysis must account for cost basis adjustments, unrealized & realized gains and losses, and the difference between long-term and short-term characterization.
The GainsAdvisor Sell Grade metric does all this for you!