Broker Check

Financial Surprises are (almost) Never Fun!

April 26, 2022

It’s certainly not fun when you find out that you owe the government a significant sum of money come tax time. That’s why it is important to not only track how your investments are doing, but also to keep an eye on your tax obligations throughout the year. (What we do is called financial planning for a reason!)

Two problems seem to be the source of most negative tax surprises.

The most obvious tax problem occurs when an asset is sold that has a tax cost-basis valuation lower than the sale proceeds. The gain results in a capital gain that is taxable.  While taking gains when an asset may be overvalued may be a good idea, investors may be able to offset all or part of the gain by selling an asset that has a loss. It is best to harvest tax losses when markets fluctuate throughout the year.

The second and less obvious source of tax surprises is owning mutual funds that pay taxable gain distributions. Data is available to evaluate the history of capital gain distributions for each fund you may own. In a taxable account, all other factors equal, it is better to own funds with a history of lower gain distributions.

Tax laws are continually changing. Taking advantage of shrewd investments throughout the year can result in taxes owed at the end of the year. While no one can promise a smaller tax burden, we do need to manage tax events efficiently and keep track of ever-changing tax laws.

We leverage that knowledge and experience on behalf of our clients. We communicate with them throughout the year and keep them up to date on many things, including their potential tax bill, so that it doesn’t come as a nasty surprise in April!

If your experience with financial planning has been short-term focused, we want to introduce you to a more comprehensive financial planning methodology. Let’s grab a beverage and talk about how we can help you pursue your goals. 

Schedule a meeting today: Contact us here