As we flip our calendars from February to March, there is a wonderful reverberation of optimism that you can almost feel in the air. I know we live in Iowa and there is still plenty of time for cold and snow and whacky weather, but you also can’t help but notice a momentum of people slowly clawing out of hibernation and getting more productive with the new rush of vitamin D!
When you think about spring cleaning, you may also feel a little overwhelmed with everything that comes to mind. Yard work, home cleaning, tax time… maybe by now you’ve even had to “adjust” your New Year’s resolutions? Stay optimistic and don’t forget the year is young!
This time of year, I am usually very busy with client reviews, sometimes in concert with our clients’ tax advisors. It has been a great last few years in the markets, but gains = taxes and this is the only time of year it “hurts” to recognize that success. While gains in your investment account are almost always the goal, we do our best to stay ahead of any tax implications that come with it so our clients aren’t surprised when it comes time to file. There are multiple strategies to help offset gains or harvest losses, or even to mitigate short-term versus long-term tax implications, but at the end of the day we want to make decisions that follow our financial plans and are advantageous to long-term goals rather than just thinking about one fiscal year at a time.
Sometimes, when you have an advisor or team that actively manages your accounts, there can be some confusion about realized gains and losses. You may have not taken any money out of the account, but there may have been trades within the account that grew in size.
Example: If I buy a position for $100 on January 1, it grows to $150 a few weeks later so I sell it. I have a realized (short-term) gain of $50. I might take this $150 and invest it all into a different position, but I still owe tax on the $50 gain even if I didn’t cash out the account. I would still have a 1099 coming for trades placed with overall growth (this is a GOOD thing!!)
Types of tax implications: Short-Term Gain (STG): A position was held for less than one year, taxed as ordinary income on any gains above the cost basis. Long-Term Gain (LTG): A position was held for more than one year and sold for a higher amount than the cost basis, taxed as capital gains rates rather than income.
Types of Investment Account Tax Forms: Brokerage / Individual / Joint accounts: 1099 IRA / ROTH IRA / 401(k) accounts: 1099-R (if there were any required minimum distributions (RMDs) or redemptions).
If your tax advisor or financial advisor aren’t helping you navigate what is best for your long-term investments (and legacy of passing onto loved ones!), it would definitely be worth your time to search around for a more full-service professional.
Don’t forget the distinction: Suitability (broker dealers / commissions-based sales): Only has to prove suitability at the point of the investment/sale. Fiduciary (Fee-based advisors, financial planners/advisors…ME!): Constant ongoing relationship, legally bound to act in the best interest of the client at all times.
Advocating for our clients in good times and in tax times is all part of the job and we are proud to be a small part of their legacy of success! Anytime is a good time to “spring-clean” the dust off your financial aspirations.
Ashlea (Kleitsch) Jones
Financial Advisor
Prime Capital Financial
Cedar Rapids, Iowa
primefinancialcedarrapids.com
(319) 269-7143
Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Financial | Wealth | Retirement | Wellness.
Ashlea Jones