By Tony Delane, CFP®, AIF®, Associate Wealth Advisor
By now, you’ve no doubt been hearing from your team how much financial information we’re able to glean from your tax return and apply on your behalf.
Your Tax Return Can Be a Valuable Source of Intelligence for Us in Managing Your Investments, Including:
Carefully assessed asset location is a critical component of our portfolio management process. When you hold a diversified mix of taxable, tax-deferred, and tax-exempt accounts, this allows us to target the placement of specific investments to secure optimal tax treatment. Those investments that are less tax efficient, for example, would ideally reside in a Roth IRA, as their income would not be taxed, nor would their growth in value .
On the other hand, investments that are more tax efficient, such as some Exchange Traded Funds, are good candidates for placement in a taxable account. For accounts with bond holdings, we also can be strategic about positioning certain types of bonds in different types of accounts to further maximize tax efficiencies. The degree to which we use asset location differs from investor to investor; we continually evaluate the strategy based on your real tax data each year.
Capital Loss Utilization
We carefully appraise capital gains in your taxable account(s) during our periodic trading and rebalancing. Your tax return can offer key insights to assist us in this area. For example, there may be a transaction from the prior year that produced a sizable capital loss. When possible, we can utilize that capital loss in a future year to offset against other trades in your portfolio that would otherwise leave you exposed to hefty capital gains taxes. With your information in mind, we can make more precise rebalancing decisions and take advantage of other adjustments to your portfolio allocations.
Capital Gain Management
As mentioned, we are careful to understand the implications of every trade in your taxable account(s). There are thresholds you may cross for capital gains to be taxed an additional amount, or for Net Investment Income Tax (3.8%) to be applied. In an outsized year with higher-than-normal income, we may look to hold a particular trade for a future year.
While not an exhaustive list, these are three important ways that your tax return can help to inform how we manage your investments. If you’ve already sent your 2022 tax return to your team, we look forward to reviewing all of the above and more. If you haven’t shared a copy with us yet or are waiting to file, we’d appreciate receiving it; your team can provide you with a secure link for uploading it into our system.
Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.