Capital Gains Management and Tax Loss Harvesting
As investment managers providing custom portfolio management, we can carefully manage the tax implications of investment decisions. For assets in taxable accounts, we emphasize maximizing after-tax returns. Staying in close communication with our clients (and often their CPA/accountant) keeps us abreast of the client’s changing tax situation throughout the year and allows us to manage client assets more effectively.
We have extensive experience working with portfolios containing low-basis stock. Unlike some money managers who force everyone into the same cookie-cutter portfolios, we can manage portfolios containing these types of assets and custom design a portfolio that works with low-basis stock. We take the time to talk to clients about these investments up front, and we can typically find a solution that balances our clients’ desires for tax efficiency, diversification, and investment performance.
For clients in higher tax brackets, we often use municipal bonds for their tax advantages. Municipal bonds are free from federal taxes. Furthermore, municipal bonds issued in your home state are generally tax-free for state income taxes as well. It is critical that we closely monitor each clients’ income as the suitability of municipals depends on the client’s tax bracket each year. A close relationship with the client’s CPA enhances our ability to accurately make these decisions.
Lastly, we engage in tax-loss harvesting throughout the year to help manage our clients’ capital gains. Tax loss harvesting must be performed with attention paid to wash sale rules. Seemingly insignificant decisions such as dividend reinvestment can trigger a wash sale, compromising capital losses. While we never make investment decisions based solely on the tax implications, we look for opportunities to harvest tax losses when we can.