People often call my office and ask if we can prepare their tax returns. “We handle investment portfolios in America,” I explain. “We don’t do taxes.” I understand why people think that we might file tax returns for clients since, after all, investments and taxes are related.
Thinking about taxes when making investment decisions
It’s true that experienced financial professionals consider the tax consequences of investments they suggest. However, you still need to consult with your own tax advisors, since everyone’s situation is unique. But if an investment professional doesn’t give tax advice, how come I titled this article the way it appears above?
A common technique to lower taxes
In making investment decisions, we know that people pay tax on “realized profits.” That means they bought something, and then later sold it for more than they had paid for it. They must report that profit to their accountant, who then calculates the tax due. But what if someone also sells an investment that has lost money? Imagine you made a $50,000 profit on one position and suffered a $10,000 loss on another. When your accountant figures out the bottom line, he’ll tell you that you only owe tax on $40,000, not on $50,000. He will “offset” the loss against the gain, and that will mean paying less in taxes.
Can I improve my portfolio without paying a lot in taxes?
One woman recently sat with me to review her account. She said she felt her portfolio was too aggressive, but was afraid to sell stocks because of the tax that would be due on all her gains. I pointed out that although many positions in the account were winners, she had a number of losers, too. When I demonstrated how we could sell some of the losers as well as her winners, and not generate a tax, she was thrilled. She asked if our company could take over handling the account, and so we started on the transfer right away.
Worried about risk in your portfolio? Let’s start a conversation, call 02-624-2788, doug@profile-financial.com.
Douglas Goldstein, CFP®, GFP®, 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 September 23, 2021.