As we wrap-up the 2021 tax season, you may have heard stories from friends or coworkers about an unexpected tax bill. Or maybe you yourself were surprised after meeting with your tax professional. Sometimes there are unavoidable tax events like selling a business, property, or receiving a payout or unexpected bonus from your company. Oftentimes when talking with potential clients, we are asked what more could be done to help manage their tax situation.
In general, there are two key areas we feel often are not fully explored – proactive investment management practices as well as charitable gifting strategies.
Through portfolio construction, ETFs (or Exchange Traded Funds) can be one way to keep costs low and maintain an exposure to the broader market. At JNBA, we go a step further and will place assets in certain tax-qualified accounts (your Roth IRA instead of a taxable account, for example) based on the characteristics and potential income from the fund. In most cases, we are looking to place ETFs in taxable accounts and mutual funds in IRAs. This allows us to create an additional layer of tax efficiency given mutual funds have more income that can be sheltered within the IRA account (tax-deferred).
We also employ a number of practices to help create tax-efficient portfolios for clients of all sizes. We review client accounts every 10 business days, seeing if there are any tax losses that could be harvested vs. only looking for those opportunities at quarter or year-end. In addition to frequently monitoring clients’ accounts, as we approach year-end we review positions within accounts for opportunities to minimize any year-end capital gain distributions from the mutual funds companies. Upon reviewing year-end capital gain distribution estimates and understanding if this substantially changed a client’s portfolio income for the year, we work with clients and their tax professionals to better understand the anticipated tax liability and what other strategies could be implemented. For those individuals and families who are charitably inclined or already have gifting as a part of their financial life plan, we encourage them to explore gifting stock with low cost basis, utilizing Donor Advised Funds or Family Foundations, and reviewing other methods of charitable gifting that aligns with their values with the extra bonus of potentially lowering their tax situation.
At JNBA we pride ourselves on being tax aware all year by following our disciplined and proactive investment processes and working hard to prevent any surprises at tax time.
JNBA is not an accountant and no portion of the above should be construed as accounting advice. All accounting issues should be addressed with an accounting professional of your choosing.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from JNBA Financial Advisors, LLC.
Please see important disclosures information at www.jnba.com/disclosure