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The Benefit Of Having Your Investments And Taxes Prepared At The Same Company

Updated: Jul 7, 2021

What’s the reason for having your investment advisor and tax preparer work together? It could be thousands of dollars a year difference when paying taxes to Uncle Sam.

Make every dollar count

Portfolio adjustments are a normal part of investing, but when not taking into account how that will affect an overall tax situation, it could have negative consequences. Taking into consideration the entire tax situation can mean thousands of dollars of difference when deciding to make a sale. In addition, the extra taxable income could disqualify one from certain tax credits and deductions causing an even larger amount owed.

For example, say a financial advisor sells off $100,000 in investment gains. If normal taxable income puts the client in the 22% tax bracket without factoring in these short term gains, that would automatically trigger an additional $22,000 tax bill just on the sale of those investments. On top of that, depending on where one’s income falls, it could send a household into the next higher tax bracket at 24% or even 32%. Thus, deciding to sell $100,000 could be the difference between owing an additional $2,000 or more when it comes time to file a tax return.

Having a good plan

But what if it’s time to make that sale anyway, either to rebalance a portfolio or to take income? Having a plan in place is key. Selling investment “losers” to offset gains could counter the extra tax liability and make a big difference when it comes time to pony up with the government.

Tax loss harvesting is another tactic. For example, let’s say a household has $2,000 in taxable income in the 22% bracket. Each year, an investor is allowed to take a $3,000 net investment loss. If some positions can be sold to realize that loss, that could help avoid paying a 22% tax on $2,000 in income, instead bringing it back down into the 12%tax bracket.

If a household files a joint tax return with total taxable income under $78,750 (based on 2019 rules), selling long-term positions with gains would add no taxable income, since the investments would instead be taxed at the capital gains rate. Of course, knowing where annual income stands is an important factor here, but accounting for that could make a big difference in ultimate taxes paid.

Communication is key

Long story short, we believe that investment advisors and financial advisors should be working closely with whoever is planning and preparing taxes. Here at Concinnus Financial, we are a fiduciary: We are legally bound to put the client’s interests above our own. We stay connected with each client and help make a plan combining all parts of the big picture, including investments and taxes. Contact us today to see how we can simplify your financial situation. 

Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. Investing involves risk and you may lose your principal.

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