Skip to Content
chevron-left chevron-right chevron-up chevron-right chevron-left arrow-back star phone quote checkbox-checked search wrench info shield play connection mobile coin-dollar spoon-knife ticket pushpin location gift fire feed bubbles home heart calendar price-tag credit-card clock envelop facebook instagram twitter youtube pinterest yelp google reddit linkedin envelope bbb pinterest homeadvisor angies

Robert T. Kiyosaki stated in his book, ‘Rich Dad’s Cashflow Quadrant’, that “…financial intelligence is determined, not so much how much money you make, but how much money you keep, how hard that money works for you, and how many generations you can keep it.”

In our recent blog discussion of tax planning, we shared several tax tips for tax-deferred IRA accounts which can provide significant tax savings.  Our focus in this blog is to discuss tax savings for investors with taxable investment accounts.

Actions to consider:

  • Tax loss harvesting. In the fourth quarter of 2018, the major stock indexes had significant downturns as you may remember.  Most indexes dropped 20% or more.  Even though it is distressing to see downturns like this, it was a perfect time to take tax deductible losses:  sell the investments that sustained losses and repurchase investments in the same class but not an identical fund or stock to take advantage of the capital loss and avoid IRS “wash sale” tax rules. The “wash sale” rules disallow the loss of stock sold and an identical stock purchased soon after the sale.  Be careful!  For the year-end, if you have current losses or carried over tax losses, consider taking gains to offset them and at the same time rebalance your portfolio.  See below rebalancing benefits.
  • Timing annual cash flow/ income to minimize or avoid paying capital gains tax on sale of investments. In retirement this is especially important.  If you have a typical stock and bond portfolio, consider designing a plan that minimizes the need to realize taxable gains on sales of appreciated assets for your cash needs.  One way to reduce taxable gain distributions is to create a fixed income ladder with bonds that mature each year to provide liquidity for your anticipated cash needs.
  • Rebalancing your portfolio to keep your plan on track. Presume you have 50% stocks and 50% bonds, and your financial plan’s Monte Carlo analysis (forecast of future expected investment returns) is on track to achieve your goals in retirement.  If due to stock market moves you now have 40% stocks and 60% bonds allocation, the prudent plan is to buy more stocks and sell bonds to “rebalance” your investment portfolio to keep your plan on track based on your Monte Carlo analysis.

When possible harvest tax losses before rebalancing your portfolio to minimize the possible taxable gains from rebalancing.  Rebalancing can be coordinated with loss harvesting in some circumstances to minimize your annual taxes due to gains realized when rebalancing your portfolio.

  • Purchasing and holding international investments in taxable investment accounts, not IRA accounts.

International stocks and investment funds normally pay international taxes annually, and you, the US investor, can deduct dollar for dollar the foreign tax credits in a taxable account.  The foreign tax credits are lost in an IRA account as they are disallowed per IRS regulations.

 

 

Your questions and comments are welcome regarding these important planning issues.

We are pleased to offer a complimentary meeting to discuss your questions on these important tax and wealth management issues.

This article is for informational purposes only and is not to be construed as investment or tax advice. Readers are strongly advised to consult with their professional advisors before attempting to employ any concepts stated herein.

An Important Message

While every effort has been made to provide valuable, useful information in this publication, this firm and any related suppliers or associated companies accept no responsibility or any form of liability from reliance upon or use of its contents. Any suggestions should be considered carefully within your own particular circumstances, as they are intended as general educational information only.