Tax Management Overlays and Tax Loss Harvesting

Picture of Scott Hohman, CFP®, AIF®

Scott Hohman, CFP®, AIF®

Critical Elements of Your Tax-Smart Portfolio

This article marks the sixth installment in our Investment Strategy Series, where I’ve been introducing each of the valuable elements of our newly enhanced investing strategy for Resolute clients. You can review any of the previous articles in this series through these links:

Today, I’d like to share our offerings related to tax management overlays and tax loss harvesting – critical elements of a tax-smart investment strategy.

What is a tax management overlay?

The vast majority of individual investors are not tax experts, yet managing your tax liabilities is key to a successful investment strategy. Our tax overlay services allow us to protect the integrity of your overall investing plan while better managing your tax exposure – especially short-term gain exposure when Separately Managed Accounts (SMAs) are utilized. For example, we can look for opportunities to harvest unrealized losses in order to off-set gains. This process of tax loss harvesting means you’ll only pay taxes on your net profits – the amount you’ve gained minus the amount you’ve lost – thereby reducing your tax bill and better positioning your portfolio for the future.

The goal of this process is to improve a client’s after-tax returns. Essentially, we enhance returns by minimizing the tax cost related to investment returns.

SEE ALSO: Strategies for Preserving Multigenerational Wealth

How does it work?

With Resolute’s tax management overlays and tax loss harvesting services, you can rely on a smoothly coordinated effort across multiple SMA managers. The process weighs the impact of transactions on taxes against the risk of not complying with the manager’s first-choice recommendation. It actively seeks out opportunities to match gains with losses, or harvesting losses when possible, to off-set prior gains.

In this process, Resolute clients have the ability to establish limits on how much they are willing to recognize in gains by establishing a “tax budget.” Our clients can also request to harvest losses in years where they may be looking for capital gains off-set from events outside the investment account.

Further, the process allows clients to hold onto positions that have gains until they are long-term, so as not to pay the higher tax rates associated with short-term capital gains. An investor can also transfer in low-cost basis stock and have a portfolio built around that stock that is diversified, while the gains are captured over time. This strategy means better managing the tax cost of just selling it all immediately.

Another important benefit? Tax management overlays and lax loss harvesting can also help investors who are trying to manage their total taxable income in order to keep Medicare rates in check.

What do these services mean for our clients?

As with every element of our newly enhanced investment management services, our goal is to allow our clients to better customize their portfolios. Through the use of tax management overlays and lax loss harvesting, we provide an opportunity for what we call “hyper-customization” – the ability to put a little more YOU in YOUR portfolio.

If you’d like to learn more about the services discussed in this article, or any facet of our enhanced investment management strategy, let’s talk. If you’re a Resolute client, reach out to your advisor at any time. And, if you’re not yet a client, schedule an introductory discussion so we can get acquainted.

At Resolute, we believe in helping you regain the personal aspect in your advisory relationship. We look forward to getting to know you and your unique goals, and to answering your questions about our wealth management and investment management services. We offer deep expertise, customized plans, client engagement, and a commitment to providing our clients with confidence in – and ownership of – their respective financial futures. If this sounds like what you may be looking for, reach out today. We look forward to hearing from you!

The views expressed represent the opinion of Resolute Wealth Advisor, Inc. (RWA). The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and nonproprietary sources that have not been independently verified for accuracy or completeness. While RWA believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and the RWA’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in equity securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.

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