The Taxman Will Take a Slice of Your Portfolio! (At WealthPoint, We’ll Keep Him Skinny!)

Investing Tax Planning
The holiday season involves gratefulness and celebration with family and friends where our diet expands accordingly.  However, the taxman is hungry and lurking about especially as we come to the end of another tax year.  No one likes paying (feeding) the tax man more than they need to, especially at the risk of not meeting your retirement savings goals.  The following are three things we do at WealthPoint to manage your portfolio and help minimize your year-end investment tax bill.


1. Place assets optimally.

Just like your portfolio should be internationally diversified, we like to see some diversity in where your money is located, e.g. taxable, tax-deferred, and tax-free accounts.  Opportunities exists to optimally locate your investment assets.  For example, tax efficient assets (stocks and muni-bonds) should be held in your taxable accounts. Tax inefficient assets (real estate or taxable bonds) should be held in your tax deferred or tax-free accounts.


2. Use tax-managed mutual funds or ETFs.

As an investor, should your goal be to maximize pre-tax returns or after-tax returns?  The answer is after-tax returns.  Some mutual funds are not managed efficiently and at year end distribute large amounts of taxable income.  In taxable accounts, we primarily use tax managed funds by Dimensional Fund Advisors who focus on the after-tax return to investors.  The fund managers do this by reducing fund turnover, seeking qualified dividend income (QDI), excluding REITs, and managing cash flow.


3. Harvest tax-losses throughout the year.

Many advisors only check for loss harvesting opportunities at year-end to offset long-term capital gain distributions.  We do it year-round.  An investment might have a loss that could be harvested at any moment throughout the year, but might recover by year-end, wiping out the loss harvest opportunity.  Word of caution for the do-it-yourselfer: be leery of wash sale rules.


If you are unsure how to see these tax avoidance strategies in your investment accounts, we’d be happy to give you a few pointers.

About the Author: Alex Perkins

Alex is a Wealth Advisor for WealthPoint Advisors, LLC. After a successful career in management consulting where he helped business executives solve their corporate challenges, he decided to pursue a passion in helping families and individuals on the personal side. Alex now enjoys helping his clients answer their most pressing financial and life questions, through a comprehensive, evidence-based wealth management approach.