The Year-round Tax Harvest

April 1, 2017

We believe that tax management should be the cornerstone of every investor’s planning process and many would agree with us. How we do it, that’s the difference.

How active tax management makes a difference

Instead of waiting until the end of the year, we harvest losses year-round to net greater savings. The effect is even greater in volatile market environments. Take a look at the difference between the traditional way (year-end harvesting) and our way (year-round harvesting).

There’s more to the story: the tax management overlay

In multi-manager accounts, the tax management overlay oversees all activity in your entire portfolio through a tax management lens — including security selection. So, because the overlay portfolio manager manages from this global view, they are closer to your goals — maximum total return after taxes.

When it all comes together: a savings story

“David,” not unlike many Private Wealth Management clients, made large investments in private ventures after many successful years growing — and then selling — his business. A significant chunk of his investments would mature this year and result in approximately $7 million in taxable gains. Through our tax management process, David could harvest losses to offset the tax impact of liquidating these investments.

Our tax management process harvests losses to offset the tax impact of liquidating investments.

Further, in David’s example, the 2016 market volatility would be a good thing. Year-round active tax management could generate more than $400,000 in long-term capital losses and more than $900,000 in short-term capital losses across David’s portfolios. If David were to use all of this benefit, he could realize a tax savings of more than $436,400* at the top long-term and short term capital gains rates. And, if we consider the unused losses harvested over the last few years prior to 2016 (as much as $420,000), David would have an even greater ability to maximize his tax savings.

In addition to the potential tax savings benefits, our overlay tax management strategy is implemented with the preservation of client’s asset allocation strategy in mind. Tax loss harvesting and other tax decisions are implemented only after considering the impact to the client’s financial goals. In David’s example, as a result of year-round tax management, he could realize beneficial tax savings, could stay on track toward achieving his financial goals, and potentially have nearly $420,000 in usable benefit remaining to use in future years.

Legal Note

*Assumes total 2016 losses used to offset gains which could be taxed as follows: long term gains taxed at 20% and short term capital gains taxed at a maximum of 39.6%.
This example is intended to illustrate the potential benefits of tax management. Results will vary and you should consult your tax advisor for individual advice.

SEI Private Wealth Management is an umbrella name for various life and wealth services provided through SEI Investments Management Corporation, a registered investment advisor.

Neither SEI nor its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.

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