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A New Tax Season

Use Software to Plan Portfolio and Taxes Together

 Bonnie  Biafore As the end of the year approaches, many people start to think about family, holidays and … tax planning? Talk about putting a crimp in a festive spirit. But year’s end is the perfect time to minimize your tax bite. Although taxes shouldn’t drive portfolio maintenance decisions, the final months of the year provide a great opportunity to reassess your portfolio, and doing a little tax strategy simultaneously makes a lot of sense.


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Software programs can help you to review portfolio performance, individual holdings and tax-related gains and losses. You’ll be able to weed your portfolio without feeding tax agency coffers.
The Capital Gains Estimator wizard in Quicken Pre-mier, for instance, shows the effect of a security sale on your taxes. It calculates the capital gains tax you’d pay if you were to sell at today’s prices. It also offers suggestions on what to sell depending on your goal (such as minimizing taxes) — for example, securities to offset gains with losses. And it will calculate the number of shares you have to sell for extra cash. Quicken Premier’s Portfolio Analyzer wizard helps you evaluate asset allocation, portfolio performance and risk.
We’ll walk through an example using BetterInvesting’s Portfolio Manager software. In the opening screen, say you want to display one portfolio for taxable accounts and a second for tax-advantaged retirement accounts (see screen capture, above).
The potential taxable amounts are listed under Year to Date Activity. The investment income and realized gains or losses that appear are for the portfolios that you’re studying. In this example, there’s no investment income, but the portfolio has a realized gain from the sale of an investment.

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Rebalancing Allocations

Suppose you want to sell some shares that carry a loss to offset that taxable gain. One place to start is to study your portfolio allocation. If you have targeted certain portfolio allocations, you can compare your current allocations against the target. Then you can determine the percentage you’ll need to buy or sell to achieve your target (see screen capture, above).
When dicing up your portfolio, you’ll want to consider your diversification not only in terms of asset class — cash, bonds and stocks —  but also in terms of the stock holdings’ various categories: domestic and foreign stocks; small-, medium- and large-company equities; and industry and sector. Make sure you’re including the holdings within your mutual funds.
Say, for example, the health care sector is above its target allocation. You notice that one of your health care stocks is showing an unrealized loss. After completing a Stock Selection Guide (the BetterInvesting tool for evaluating a company’s quality and growth) for the company, if it isn’t showing the quality and growth that Better-Investing’s methodology looks for, you might decide to sell all your shares, or you could sell some to maximize or minimize your gain. If you purchased more than one lot of shares of the stock, you can choose which shares you’re selling.
A software program such as Portfolio Manager will show acquisition date, sales date, quantity sold, cost, sale proceeds and realized gain or loss, divided into short- and long-term gains or losses — in short, everything you’d need for Schedule D of your tax return.
Similarly, you can track taxable and nontaxable interest and dividends, short- and long-term-gain distributions and other income. Use this information to complete Schedule B of the 1040 form.

Link of the Month

A new Google service, Google Voice, gives you a single phone number that simultaneously rings all your phones (home, office and cell). No need for people to dial one number after another until they track you down. No need to send out announcements when your phone numbers change. You simply update the numbers Google Voice rings.
You can even tell the service which phones to ring based on who’s calling. Calls from business associates, for example, could ring only your work phone, while calls from your kids might go to all your phones. And pesky callers can go straight to voice mail. Messages from all your numbers go to a single voice-mail box, which you can check from your phone or online.
Go to Google Voice’s invitation request website to find out about the free new service. After you’re able to sign up, you’ll get free calls within the United States, free conference calling and low-cost international calls.
From Google Voice’s main site, you’ll be able to call someone by accessing your online address book, clicking Reply to someone’s voice mail or missed-call entry or selecting the Call button and typing in a number.

Bonnie Biafore is the author of 24 books about investing, personal finance, project management, software (such as QuickBooks and Project) and the recently published novel, Fresh Squeezed. Go to BonnieBiafore.com to learn more.

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