Realizing Gains and Losses Before Year-End – 2014

file2491241837403There is a well-known saying that the only things certain in life are death and taxes. As 2014 draws to a close, we know all too well that taxes are a certainty we can expect at the onset of the New Year. With that in mind, if you are taxed on total income, now is the time to talk to your advisor about what to do with any capital gains or losses in your portfolio.

If investment positions need to be reduced due to a market run-up, doing so in a year when underwriting income is not strong may help your income statement look better and help you avoid paying taxes on that gain. If on the other hand, you are having such a good year that you will owe more than you had planned in taxes, taking some capital losses in your investment portfolio can reduce your tax bite. One key to making these decisions is to have information regarding when you acquired investments in your portfolio and what you paid for them each time. Often you may have acquired the same investment on several occasions and the tax consequences of the sale of each tax lot can be different. Your advisor can help you sort through what you might consider selling. This could help you achieve vastly different results in your income report to your policyholders and on your tax return.

It is also important to keep in mind that a mutual fund could have a capital gain even if it is down overall for the year. A fund’s distribution of capital gains may be based on a transaction made earlier in the year – these distributions are taxable. Additionally, consider taking losses this year that can be used to offset future capital gains.

Remember, if you are taxed on investment income rather than total income, taking a loss will not help your tax situation. If you are in this position and you have less than $1.2M in premiums, you may want to consider changing your tax status. (NOTE: there is a push to raise the premium amount to $2M…stay tuned for more information on that!)

Harvesting capital gains and losses is not without risk. It requires careful consideration of the big picture and a thorough analysis of your particular investment mix. This is why it is important to discuss all your options with a trusted advisor who can help you weigh the tax benefits and investment risks.

About Objectively Speaking

Tom Batterman, founder of Vigil Trust & Financial Advocacy and Financial Fiduciaries, LLC is in the business of representing the best financial interests of his clients. Having provided objective, fee-only financial management services for over two decades, he specializes in managing the investment and related financial affairs of individuals and mutual insurance companies who do not have the time, interest or expertise to manage such matters on their own. As an objective, unbiased professional who takes on a fiduciary responsibility to his clients, he guides clients to the financial decisions they would make themselves if they had years of training and experience and the time and expertise to fully research and understand all of their options. Founded in 2010 as an outgrowth of Vigil Trust & Financial Advocacy, Financial Fiduciaries, LLC is a financial management solution for individuals and mutual insurance companies who recognize they do not have the time, interest or expertise to properly attend to their financial matters on their own. While there are many financial “advisors”, most of them have investment products to sell and the “advice” they provide is geared toward getting their clients to engage in a purchase. As one of the rare subset of advisors known as “fiduciary advisors”, Financial Fiduciaries does not sell any investment product so its guidance is not compromised by conflicts of interest which plague ordinary advisors. Prior to his employment in the financial industry in financial advocacy and trust positions, he worked at a private law practice in the Wausau area in the areas of estate planning, tax, retirement planning, corporate organizations and real estate. He is a graduate of the University of Wisconsin-Madison and the UW-Madison Law School and has during his career held Series 7, 24 and 65 securities licenses. A longtime resident of the Wausau, Wisconsin Area, Tom is active in the community. He enjoys golf, curling, skiing, fishing, traveling and spending time with his family.
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