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year-end

December Will Be Taxing.....or maybe not.

As the year draws to a close, it’s normal that our attention would be turned to income tax management. 

What’s not normal is that this year, if the laws play-out as they’re legislated, we’ll be turning the tax world upside down. 

Normally, we’d be looking to take tax losses and postpone gains, however, this year we’d be looking to do just the opposite, we’d be looking to take gains and shove those losses out a bit. That’s because the capital gains rate is expected to go up in 2013 as are the overall tax rates, that means your losses (if you have them) would be more valuable to you under next years tax rates than they would under this years rates.

Sounds easy enough right? Oh, if it were only that easy......

There’s actually a continuum of options: 

  • lower bracket tax payers who enjoy a zero percent capital gains rate this year want all the gains they can get. Next year they’re rate increases on capital gains exponentially
  • middle bracket tax payers, those in the 28% bracket want to take their gains too with this caveat, the best candidates for tax planning this year are middle bracket taxpayers who have little to no carryover losses from previous years. That’s because you MUST take your losses if you have them (which you’d be taking at a lower tax rate and you don’t want to do that) against your gains
  • high bracket tax payers likely too want to take their gains because their capital gains tax rates are lower this year than they’ll be next year but again, that makes sense only if they don’t have carryover losses from previous years for the same reason as noted above for middle bracket taxpayers

Bottom line is that you need to have the details of your personal situation on hand in advance to aid in your decision making, here’s what we recommend; 

  1. Know you gain and loss positions by early December and evaulate what can “go” and what can “stay” 
  2. Contact your accountant or tax preparer and ask them what amount of carryover losses you had when your return was completed last year
  3. Ask your accountant or tax preparer what your marginal tax bracket was last year and what they think that it’ll be this year and if you’re in the lowest brackets
  4. By Mid-December, finalize a strategy that you’re comfortable implementing to get the biggest tax bang you can

By the way; our Mid-December recommendation isn’t one we pulled out of our hat. Odd are you’ll get interim legislation before the Christmas recess on either new final regulations or the inevitable changes that are slated for change on December 31st. 

Either way, you’ve got to have a strategy ready in time. 

Of course if the rules change before year end, this could have been for naught but better to be safe than sorry. 

If you have any questions, email us by using our Contact form here and we’d be happy to give you our feedback. 

Note: Barry Capital Management clients have this process already being taken care of as part of our Wealth Management program offering. 

Throwing A Hail-Mary With Your Money

If Wall Street cared about your future before it's own....well, that's not going to happen now is it?

If Wall Street cared about your future before it's own....well, that's not going to happen now is it?

"Fund managers like these guys who are underperforming are going to want to make themselves look good for the rest of the year and make up for lost ground. There's going to be an effort to pull out the year in the last month."

"Fund managers like these guys who are underperforming are going to want to make themselves look good for the rest of the year and make up for lost ground. There's going to be an effort to pull out the year in the last month."

So says a recent CNBC.com article

It seems to me that you should be the key person in your investment relationship. 

It would seem fair and appropriate I think, that your goals, and your interests should be the ones first served. 

The statement from CNBC.com seems to portend that active investment managers now know what had escaped them for the first eleven months of the year, namely how to make money in this market. 

That would of course, beg the question, "what changed?" Since the only real change is the focus of your investment manager, you might ask, how many boundaries will get crossed, how much additional and unwarranted risk will get taken, and how many "policies" will get overlooked in the interest of "pulling out the year?" Are those actions that are being taken something that you signed on for? Are they policies that you approved? Are they risks that you agree with? Doesn't seem to matter does it? No, because this isn't about you, its about them. 

If you're investing (not gambling) then contrary to their belief it's ALL about you. It should be about your willingness to take that risk, your willingness to minimize unnecessary transaction costs and taxes. But in the world of active management, it's much more likely to be about what they want, not what you want. 

We control very little in our lives anymore. We don't get to set economic policy and we don't get to decide on the direction or velocity of the stock market. That being the case, we should control what we can control, namely how our investment professionals respond to the fact that we exist at all. This fact, that it's your money, is something that should never be overlooked or trivialized. 

When the focus becomes "pulling out the year" understand that the effort, while likely doomed to fail before it even starts based on any reasoned objective measure, is being played out with your retirement/college fund/kids wedding money.

So if December becomes the month that a strategy worked, you might want to ask yourself how that happened and what changed? Why wasn't that the strategy employed throughout the year?

If it fails, you might want to consider who'll be harmed when it doesn't work?