2017 Year-End Planning
Investors often think about charitable giving and tax-loss harvesting at year end. This year, these activities may be especially important because we can still specify tax lots for gifting or loss harvesting.
Conclusion
Despite the potential pending changes, the basics of tax management still apply:
• Avoid realizing short-term gains
• Defer long-term gains as long as possible to earn a compounding benefit
• Accelerate the realization of tax losses (to offset those realized gains that are unavoidable)
• Pay attention to your holding period to honor the wash-sale rule and the qualified-dividend rule
• For portfolios with options and derivatives, pay attention to the straddle rules
If FIFO is put into place, portfolio managers will need to balance the benefits of harvesting a loss against the potential gains required to get through the older tax lots. While this adds some additional complexity to tax management, paying attention to taxes is still a source of significant value to investors.
Paul Bouchey is chief investment officer for Parametric Portfolio Associates.