The U.S. tax system is woefully complex. There are many types of federal, state, and local taxation. There are many fields of taxation that Renaissance CFP’s® address, including personal income taxes, business taxes, payroll taxes, investment taxes, estate taxes, and more. Most of our CFPs® are former and present-day educators. Sharing our knowledge, and providing assurance that the messages are understood, are both key attributes at Renaissance.
While we do not prepare tax returns, we team with your CPA or enrolled agent to explain how your investments with us are affected by tax issues. We carefully and patiently explain important taxation terms for you, depending upon your level of familiarity with the admittedly less-than-exciting field of taxation.
For example we can explain the different income tax implications between retirement and non-retirement accounts. We explain the graduated tax system and household categorizations at the Federal and state tax levels. We explain (short and long) capital gains and losses and how/why cost basis is important. For business owners the topics of business and payroll taxes will be a focus. When it comes to taxes, there is A LOT of explaining to do.
Beyond explanation, we employ our tax knowledge in managing your investment accounts. For example, we advise you of the tax implication of buy/sell decisions with non-retirement accounts. We work with your tax professional to assure the availability of data to complete timely tax returns. When appropriate, we employ tax loss (and gain) harvesting.
When looking for tax-loss selling candidates, we consider investments that no longer fit your strategy, have poor prospects for future growth, or can be easily replaced by other investments that fill a similar role in your portfolio.
When looking for tax losses, we focus on short-term losses which provide the greatest benefit because they are first used to offset short-term gains—and short-term gains are taxed at a higher marginal rate.
With investment strategies, we generally contend that it would be a poor decision to sell an investment, even one with a loss, solely for tax reasons. Nonetheless, tax-loss harvesting can be a useful part of your overall financial planning and investment strategy, and should be one tactic toward achieving your financial goals.