TAX TIPS for the UPCOMING SEASON

Here are some helpful tips for investors to be aware of as tax season begins.

1. Reinvested Dividends - One way to buy new shares is by reinvesting with dividends and capital gains. Although this is very convenient to the shareholder, those reinvestments are taxable. So make sure you’re keeping your cost-basis information up-to-date.

2. Investment Exchanges – Exchanges receive the same tax-treatment as any purchase or sell of any securities. Therefore, those gains and losses are taxable regardless of the security (taxable/tax-exempt) in which they are held.

3. Always keep your year-end statements. When we get busy in our day-to-day lives, it is easy to overlook those monthly statements, especially when you have multiple accounts. The year-end statement shows all the purchases, redemptions, reinvestments that occurred in the account. Each transaction must be accounted for in order to determine cost-basis and the amount to be taxed. By maintaining your year-end statements, you’ll save yourself (and your accountant) time, money, and headaches.

4. Add Reinvestments to your cost-basis. By adding reinvested amounts to cost-basis, you’ll avoid paying unnecessarily high capital gains tax. By not adding sold shares price to the original cost-basis, you may end up paying taxes on already tax-paid shares.

5. Adjust Cost-Basis for non-taxable distributions & reinvestments – Some distributions are nontaxable – if you reinvest them, you may need to adjust the cost-basis. This is generally noted on Form 1099-DIV in the nontaxable distribution box.

6. Select the most tax-advantage cost-basis calculation method. First-In, First-Out – (FIFO) is using the first shares purchased as the first shares sold. Whereas, the average cost approach, allows you to sum the cost of total shares, by the total shares owned.

** Keep in mind, once you select your method, you cannot change for each transaction.**

7. Avoid “Wash Sales” – Many have failed trying the “Wash Sale” maneuver. Some believe that by selling their funds at a loss, then repurchasing almost identical shares shortly thereafter will credit capital loss on income tax – but the IRS is wise to this scheme. So you should work with a competent advisor prior to implementing any tax strategy.

8. Don’t forget State Tax - The State government also gets to tax investments, too.

The above discussion is general in nature and you should consult a CPA prior to implementing any tax strategy. We are happy to answer any questions, please feel free to contact us and we will get you on the right path.