Tax Time

October 24, 2018 - Published by IAG Wealth Partners

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The clock is ticking on 2018. The end of the year may seem pretty far away, but Christmas Eve is just two months from today.

As you likely know, the tax rules for 2018 changed substantially and the IRS is very busy writing new forms to help you abide by the new rules. You can take a sneak peek at their latest draft of the 2018 Form 1040 here. It certainly looks different than 2017.

At IAG we are also quite busy thinking about taxes for our clients. While the IRS wants you to pay taxes, we are more in a tax minimization mode.

Our investment philosophy is not to let the tax tail wag the portfolio dog. Keeping your portfolio within your risk budget is our primary portfolio objective. However, we also work to minimize the taxes you pay along the way.

This starts by consciously designing taxable accounts with more tax efficient investments while taking into consideration your potential cash flow needs.

In general owning long-term equity investments in taxable accounts is more tax efficient due to special dividend and capital gain tax rates. If your tax bracket is fairly high, we may also consider using tax exempt bonds instead of taxable bonds. Finally, we also take into consideration the likelihood that an investment will make year-end capital gains distributions when selecting investments for taxable accounts.

Once your portfolio is implemented the market will necessarily create opportunities for additional tax efficiency.

We strive to maximize this opportunity by selling depreciated investments and buying a different investment in the same asset class. This gives you the tax benefit of a capital loss that can be used to offset other capital gains or up to $3,000 of federal taxable income per year. Any unused capital losses may be carried forward to the following tax year perpetually, but it is important to understand the wash sale rule when creating capital losses.

Most importantly, because we use the proceeds from the investment sale to buy an investment in the same asset class we maintain the integrity of your risk budget.

Finally, many investments are required to distribute to their shareholders any capital gains they accumulate over the course of the year. This can lead to year-end tax surprises. We proactively monitor potential capital gain distributions for our clients. We then determine whether it is more tax efficient for you to pay taxes on the capital gain distribution or to sell the investment before the capital gain distribution is paid.

Because your tax situation is unique and tax laws are complex, we strongly recommend consulting your qualified tax professional before making any tax decisions.

While we employ all of these tax efficient strategies throughout the year, between the end of October and the end of December are our busiest times for helping you minimize your 2018 taxable income from investments.


Quote of the week:


Arthur Godfrey: “I’m proud to pay taxes in the United State; the only thing is, I could be just as proud for half the money.”

Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.

Past performance is no guarantee of future performance. In fact, the opposite can be true. The information contained in this report does not purport to be a complete description of the securities, markets, or development referred to in this material. Investing involves risk including loss of principal.

Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein.

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