Tax-Aware Solutions
Once the sole domain of ultra-high net worth investors, advances in technology have made these techniques more broadly available. Mayflower Advisors is proud to deliver tax-smart solutions to our clients.
Our tools are particularly powerful for clients with taxable accounts. During periods of volatility, tax-smart investing enables advisors to do more for their clients than simply help them “stay the course.” With our tools, we’ll be able to make moving to an updated investment strategy more tax-efficient, if appropriate, as well as potentially enhance after-tax returns through a systematic approach to tax-loss harvesting.
Gaining an Edge
If left unmanaged, taxes can eat into your investment returns and leave you with less for your long-term goals. And with the potential impact of market volatility, investors seeking to pursue successful outcomes should consider alternative sources of seeking improved investment returns.
There is a lot of talk about “Alpha” when it comes to investment returns, but have you considered “Tax Alpha”? This is the outperformance that an investor can potentially achieve by taking advantage of all available tax-saving strategies.
Tax-Loss Harvesting
Tax loss harvesting is one such strategy used to minimize capital gains. This is accomplished by selling an investment position that is down to offset capital gains elsewhere in the portfolio — potentially lowering your tax obligation for that year.
By automating this process, your Mayflower wealth manager can harvest losses at a much higher frequency and efficiency.
Tax-Loss Harvesting: How It Works
-Consider you hold $10,000 in Security A and the market declines 20%. At this point, your investment has lost $2,000.
-You now have a choice: 1. Do nothing or 2. Use the loss to lower the tax bill
-By selling Security A and replacing it with a similar security, your investment strategy remains intact, and you now can use this loss to offset gains in other parts of the portfolio. 1
-Now consider elsewhere in your portfolio Security B has a long-term gain of 25%. If you were to sell this holding, and pay the maximum long term tax rate of 23.8% on the $3,000 gain, you would owe $714 in taxes.
-Since you previously harvested the loss on Security A, you can offset $2,000 of this gain and save $476 off the tax on this gain, allowing the investor to keep that Security B money invested.
3 Important Use Cases to Ease Tax Burden
It's important to consider this approach if you: are interested in finding alternative ways to drive better investment returns, fall into a high tax bracket, own assets that have gone up significantly in value, think your portfolio is no longer a good fit, own taxable investment accounts, or have cash that you want invested in a tax-efficient manner.