When we meet with new clients, this is an area that has usually been done incorrectly. The current tax code favors long-term capital gains and qualified dividends to ordinary income. It’s important to get this right. That’s because how you place (and locate) different investments among your tax-advantaged and taxable accounts, makes a significant difference to your overall returns.
We know, harvesting losses does not sound too exciting. However, it can be of real value to you, helping you offset gains and taxable income elsewhere. We can maintain the same exposure by switching into other similar investments.
As we make trades, we measure the tax impact. We then update your CPA throughout the year, so they know if any adjustments or changes need to be made to your tax planning.
As you begin taking funds from your portfolio, it’s really important for you to know which investment accounts (non-retirement accounts, IRA, 401k, Roth IRA) to pull them from. For example, adjustments can help maximize Social Security benefits. Additionally, Roth conversions prior to retirement, could minimize taxes over your lifetime. Our deep understanding of tax in this area, means the right decisions will be made.
It may sound counter-intuitive, but paying as little tax as possible isn’t always the best goal. You may, for example, have low income years prior to taking Social Security. If so, we can take advantage of low tax brackets by accelerating income or doing Roth conversions. As you’d expect, our goal is for you to pay the least amount of taxes over your lifetime. Sometimes, this means making sure you are fully using the lower income tax brackets each year.