Tax Planning

Every investor wants to optimize after-tax returns and reduce taxes. Few investments, however, can meet these two objectives within one investment solution.

Total Strategy Account (TSA) combines the benefits of multiple investment options and professional money management in one simplified account. Strategic tax management is also available to any taxable TSA account using separate account money managers. A key benefit of this tax management service is active, continuous tax management to help reduce your overall tax liability.

Strategic Tax Management

Tax optimization requires making individual investment choices based on potential tax penalties to your overall taxable portfolio. This service shows your portfolio in aggregate and helps you and your financial advisor execute transactions that carefully consider all the possible tax implications. If you choose to add the tax management services to your TSA, the following tax management strategies may be used:

Source: RBC Correspondent Services – Brochure 25150-CS (12/12)

  • Avoid Wash Sales — In general, you have a wash sale if you sell stock at a loss, and buy similar securities within 30 days before or after the sale. When this occurs, the IRS will not allow you to deduct the realized loss. This service monitors all taxable account transactions to avoid wash sales.
  • Apply Tax-sensitive Rebalancing — When rebalancing, there is always a trade-off between achieving the original strategic asset allocation and minimizing tax costs. In many cases, the tax costs may outweigh the expected benefits. With taxsensitive rebalancing, however, the
  • asset allocation is changed only to the extent the tax costs do not outweigh the intended benefit. Tax-sensitive rebalancing may result in one of three outcomes. No changes are made to the current allocation; the account is rebalanced back to the original allocation; or the account is rebalanced somewhere between the two.
  • Minimize Short-term GainExposure — The tax management service of TSA actively harvests losses within the portfolio to match the short-term gains. When losses are not available, it seeks to defer those gains until they reach long-term status. This feature allows you to realize those gains at the lower and more favorable long-term capital gains tax rate.
  • Integrate Outside Taxable Events — Information about capital gains and losses that occur outside of your TSA can be used to help provide holistic tax management. So this service provides value across all your investments, both inside and outside of your TSA.
  • Increase After-Tax Value — In addition to helping you lower your tax bite, tax management can add significant value to your account. That’s because, when you reinvest the money that would have gone to taxes, it will compound yearly and help fuel growth over the life of the account. The higher the return and the longer the time horizon, the more value is added.

Consider adding the tax-management feature of Total Strategy Account if you have:

  • Overall annual turnover in excess of 40% (excluding transactions resulting from cash flows, manager changes and rebalancing)
  • High income tax rates (15% or more than capital gains rate)
  • Portfolios with lower yields (dividends less than 25% of annual returns) and expected market returns above 8%
  • High sensitivity to taxes
  • Exposure to alternative minimum tax (AMT)
  • An account with deep embedded gains (greater than 10% of the portfolio)
  • Tax-triggering events or circumstances outside of your TSA account

Contact us to find out more about TSA and the tax management options available to you.

Our advisors are not tax professionals.  Should you need tax advice, please seek the assistance of a tax professional/CPA.

BNY Research and Commentary

Related Articles

Global Markets

A Greater Gateway

Hong Kong’s future prospects as a fund management center have always been tied to the promise of accessing the massive mainland China market. Its position as a gateway to China, combined with its reliable physical and legal infrastructure, will continue...

Read More: A Greater Gateway
Market Commentary

Looking at the Economic Tea Leaves

One of the underpinnings of the gain in risk assets since last fall has been the firming signs of synchronized global growth. After almost a decade of supportive monetary policies that have pushed central bank balance sheets towards representing a...

Read More: Looking at the Economic Tea Leaves
Investment Insight

Investment Update: 2018 Outlook is Good, but Not as Good

In Jeff Mortimer's January 2018 Investment Update, he discusses key themes, his develping outlook for 2018 and what it means for your portfolio.

Read More: Investment Update: 2018 Outlook is Good, but Not as Good
Asset Allocation

Bond Market Observations: Déjà Vu, All Over Again

The late, great Yogi Berra was right, and we have been here before. Global economic growth is running above its longer-term trend, inflation in advanced economies is poised to rise, and the Federal Reserve will travel further up the firming...

Read More: Bond Market Observations: Déjà Vu, All Over Again
Economic Insight

Watch The Skies

While drone technology has revolutionized military action, its potential civilian uses are expanding rapidly. Newton Investment global analysts consider the growing use and potential future applications of commercial drones.

Read More: Watch The Skies