2010 Press Releases

Three Tax-Planning Tips for Investors, from Folio Investing

03/24/2010

McLean, Virginia – During this year’s tax season, many taxpayers will again discover that they’ve penalized themselves from a lack of simple planning regarding their investments.

As taxpayers struggle with completing their 2009 tax returns, online brokerage Folio Investing reminds investors that it’s important to plan ahead to reduce tax burdens for this year, and beyond.

“Following some basic steps during 2010 can significantly increase investors’ tax efficiency,” said Drew Wieder, vice president of customer service at Folio Investing. “While some investors traditionally become interested in tax planning strategies at year-end or during tax filing season, it really should receive year-round attention.”

Folio Investing provided the following three tax planning reminders.

Tax-Planning Tips for Investors

1. Stay aware of pending changes in tax rates.

This year, more than any in recent memory, federal tax rates are in a state of flux. The tax cuts enacted in 2001 and 2003 during the Bush administration are scheduled to expire at the end of 2010. However, in the budget plan presented to Congress in February, President Obama proposed extending the tax cuts for all but the higher income taxpayers.

Under Obama’s plan, the top two income tax brackets of 33 and 35 percent would be replaced with new rates of 36 and 39.6 percent. The tax on long-term capital gains and dividends would also increase from 15 to 20 percent for those in the top two brackets.

Will Congress go along? Some will argue that the economic recovery is too fragile to raise any taxes—even on the top wage-earners. Others will point out that the Congressional Budget Office says that extending the Bush era tax cuts will add $4.5 trillion to the deficit over the next decade.

Look for the conclusion to the debate later this year. Based upon where these tax rates are ultimately set, investors in some tax brackets may find it advantageous to sell certain investments before higher rates set in on Jan. 1, 2011.

2. Offset tax gains by strategically harvesting tax losses.

If your regular portfolio reviews occasionally prompt a decision to sell a stock which has performed well, consider offsetting your taxable gain by harvesting tax losses. Identify and sell poorly performing securities to reduce your overall capital gains. You can also offset up to $3,000 of regular income with investment losses.

This activity has the added benefit of regularly identifying, and ridding your portfolio of, those underperforming assets—such as that stock in the company where your favorite uncle once worked, which you were holding on to for sentimental reasons.

No one enjoys losing money on an investment, but utilizing the tax loss softens the blow.

3. Defer gains from short-term to long-term.

The gain on the sale of a security held for one year or less is considered a short-term gain, and is subject to the ordinary federal income tax, at rates which currently range up to 35 percent. But if you’ve held the same security for more than a year, the gain is taxed at the capital gains rate of 15 percent.

If you are in the 25 percent tax bracket or above, give careful consideration before generating short-term gains. While it’s not always worthwhile to postpone a sale—and sometimes you may not have a choice—taxes on short-term gains can be a significant drag on investment returns. Tools such as Folio Investing’s Automated Tax Lot Strategies can help investors organize their stock transactions for the best tax efficiency.

As with any matter involving taxes, investors should consult with a tax professional to fully understand the tax consequences of their own investment decisions.


About Folio Investing

Folio Investing, a division of FOLIOfn Investments, Inc., is an online brokerage that enables investors to manage stocks, ETFs, and mutual funds as integrated investment portfolios called “Folios” that deliver better control, greater transparency, and lower cost. Investors can create their own Folios, much like creating personalized ETFs or mutual funds, or invest in over 100 Ready-to-Go Folios representing market indices, sectors, geographical regions, target dates, and more. The Folio Unlimited Plan features unlimited commission-free trading in twice-daily windows for only $29 a month or $290 a year. Ready-to-Go Folios can be managed or unmanaged, are not registered investment companies, and are offered by FOLIOfn Investments, Inc., a registered broker-dealer. FOLIOfn Investments, Inc. does not provide investment, tax, or legal advice. FOLIOfn Investments, Inc., is a member of FINRA/SIPC.