When it comes to investing, understanding capital gains is critical. Many are caught off-guard by the taxes due on their U.S. portfolios. However, this can be avoided with the right knowledge and strategy. Both realized and unrealized capital gains can affect your investment decisions and tax obligations. (While I do not give tax advice, I often work with clients and their accountants in making their investment portfolios as tax efficient as possible.)
Timing is Everything
The timing of when you sell investments can significantly impact your tax bill. Realized gains, which occur when you sell at a profit, are taxable events. In contrast, unrealized gains, where the value of your investment increases but is not sold, don’t immediately affect your tax situation.
Balancing Gains and Losses
One key strategy is tax-loss harvesting – offsetting realized gains with realized losses. For example, selling an investment at a $5,000 loss can partially offset a $15,000 gain, reducing your taxable income to $10,000. It’s a smart move that can help manage your tax liability effectively.
Understanding Your 1099 Form
Accurately reporting capital gains is crucial. The 1099 form details your investment sales and purchases, but doesn’t tell the whole story, especially regarding “non-covered” transactions. Since the 1099 doesn’t include cost basis every position, the amount of profit reflected on that document may not be accurate. To avoid overpaying taxes, have your accountant review your December statement alongside your 1099 to ensure all profits are properly recorded. Want to discover how to avoid this common tax filing mistake? Scan this QR code and watch the brief video.
The Importance of Professional Guidance
For those managing U.S. portfolios from Israel, it’s vital to work with professionals who understand the complexities of cross-border taxation. Misinterpretation can lead to significant tax ramifications. It’s essential to have a team that knows both the U.S. and local tax laws to navigate these challenges successfully.
If you’re dealing with U.S. portfolios from Israel and find these topics relevant, feel free to reach out at (02) 624-2788 for tailored advice and support in managing your U.S. investments. Remember, effective planning and a deep understanding of capital gains are key to realizing profits.
Douglas Goldstein, CFP® is the director of Profile Investment Services, Ltd. www.Profile-Financial.com He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published June 19, 2024.