BetterInvesting Portfolio Manager Improving

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					BetterInvesting Portfolio Manager
Improving Investment Tax Decisions
Created by: QUANT IX SOFTWARE, Inc.




Revised: October, 2006
Improving Investment Tax Decisions with BI Portfolio Manager
Improving Investment Tax Decisions with BI Portfolio Manager




Topics :                Importance of accurate records
                        What determines cost basis
                        What determines holding period
                        Lot-by-lot accounting
                        Tax reports
                        Effective tax decisions


    Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager

Accurate record keeping is essential

IRS finds many taxpayers do not properly report their capital gains and losses
    In 2001, 38% of taxpayer misreported capital gains and losses:
      2/3rds under reported gains
      1/3 over reported gains
    Main reasons for errors:
      lack of accurate record keeping
      due to miscalculation of adjusted cost basis
           * Based on 2001 Government Accountability Office report to Congress


      Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Improving Investment Tax Decisions with BI Portfolio Manager




Topics :                Importance of accurate records
                        What determines cost basis
                        What determines holding period
                        Lot-by-lot accounting
                        Tax reports
                        Effective tax decisions


    Portfolio Manager
4
Improving Investment Tax Decisions with BI Portfolio Manager

What determines a security’s cost basis?

Common determinants of cost basis:
    Amount paid of each purchase of the security
    Any dividends reinvested into the security
    Any non-taxable distributions (i.e., return of capital)
    Stock splits, spin-offs or mergers
    Any sales
    Any transfers
    As the result of inheritance


      Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager

Cost basis example

    What would the cost basis be of a security with the following history –
      purchased on several different occasions
      dividends reinvested
      later split its stock
      sold part of the stock position
      And finally part of the security gifted to a charity?




      Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager

BI Portfolio Manager handles this with ease…




    Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager

BI Portfolio manager handles this with ease…




                                        dollar cost averaging

    Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Improving Investment Tax Decisions with BI Portfolio Manager




Topics :                Importance of accurate records
                        What determines cost basis
                        What determines holding period
                        Lot-by-lot accounting
                        Tax reports
                        Effective tax decisions


    Portfolio Manager
9
Improving Investment Tax Decisions with BI Portfolio Manager

What determines a security’s holding period?

     When a security is sold, the taxpayer must identify the holding period for the
     property.
     Holding period is the amount of time that the security was owned by the
     investor, beginning on the day after the property was acquired and including
     the day the property was disposed of by the taxpayer.
     Holding periods of one year or less are considered short-term.
     Holding periods of more than one year are considered long-term.




       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager

What determines a security’s holding period?

Why is knowing the holding period so important to investors?
Capital gains tax rates are lower for long-term gains than they are for short-term
     gains:
       The current Federal LTCG rate is usually 15%.
       STCG are taxed at regular income - Federal income tax rates (vary between 10%
         to 35%).
     The goal is to defer the capital gain tax as long as possible, so the money can
     continue to grow.


       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Improving Investment Tax Decisions with BI Portfolio Manager




Topics :                 Importance of accurate records
                         What determines cost basis
                         What determines holding period
                         Lot-by-lot accounting
                         Tax reports
                         Effective tax decisions


     Portfolio Manager
12
Improving Investment Tax Decisions with BI Portfolio Manager
What is meant by lot-by-lot accounting and why
does this type of record keeping matter?
     One of the many benefits of an accurate and up-to-date record keeping system is the ability to
     access the raw data in an useable format.
     This is particularly important when considering the tax consequences of your investment
     decisions.
     Portfolio Manager helps by providing:
       Lot-by-lot assignment when making partial sales -
            o   FIFO (First In, First Out)
            o   Specific ID,
            o   Average Cost Methods for mutual funds – both single and double category methods
            o   Minimum or Maximum gain
       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Making effective tax decisions with Portfolio
Manager

     Definitions:
       Lot-by-lot accounting: One of the more useful features provided by
         BetterInvesting Portfolio Manager is the ability to track each purchase
         record (i.e., specific transaction lot) separately. Each lot’s purchase date,
         quantity, cost, etc. are all tracked as individual records in Portfolio
         Manager. This provides you with a very useful tax advantage when
         applying sales.




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Improving Investment Tax Decisions with BI Portfolio Manager

Example of lot-by-lot accounting...

          Lot by lot accounting




     Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Making effective tax decisions with Portfolio
Manager

     Definitions – methods of sale application:
     FIFO (First In, First Out): when shares were acquired at different times or
     different prices, BI Portfolio Manager allows you to identify the basis of the
     shares you acquired first as the basis of the shares sold first. When a sale
     transaction uses the First-In First-Out method, the program automatically
     reduces the current holding starting with the oldest lot held, then the next
     oldest, and so on, until the sale is totally applied. This method usually results
     in a higher capital gain since the oldest lots often have the lowest cost.



       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
First In First Out lot selection in partial sales can result in higher
taxes than otherwise realized if records are not organized...


Multiple lots
listed for
easy review
and
application.
These can
be sorted by
holding
period
and/or unit
cost.




      Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Making effective tax decisions with Portfolio
Manager

     Definitions – methods of sale application:
     Specific ID: when shares were acquired at different times or prices, BI Portfolio
     Manager allows specific identification of which shares were sold based, on
     acquisition date and cost basis. The Specific Identification Method allows the
     greatest flexibility when managing capital gains and losses.




       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Specific ID lot selection in partial sales can allow the user to
manually select which lots are sold for specific purposes...


Multiple lots
listed for
easy review
and
application.
These can
be sorted by
holding
period
and/or unit
cost.




      Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Making effective tax decisions with Portfolio
Manager

     Definitions – methods of sale application:
       Minimum or Maximum gain - When minimum gain selection is chosen,
        BIPM automatically allocates the sale to result in the lowest realized capital gain
        considering the lots held. Alternatively, when maximum gain is selected, BIPM will
        apply the sale to result in the maximum realized gain. This flexibility helps you
        make better tax decisions when considering past realized gains or losses – i.e. to
        offset prior activity.




      Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Automatic Minimum Gain lot selection in partial sales can help to
balance gains/losses with previous sale activity...


Multiple lots
listed for
easy review
and
application.
These can
be sorted by
holding
period
and/or unit
cost.




      Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Automatic Maximum Gain lot selection in partial sales can help to
balance gains/losses with previous sale activity...


Multiple lots
listed for
easy review
and
application.
These can
be sorted by
holding
period
and/or unit
cost.




      Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Making effective tax decisions with Portfolio
Manager

     Definitions – methods of sale application:
       Mutual Fund Average Cost Method - A holder of mutual fund shares may
         choose to use an average basis to determine the gain or loss when all or
         part of the shares held have been sold, provided the shares were acquired
         at various times and prices. The average basis is determined by using
         either the single-category method or the double-category method.




       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Lot selection in partial sales of mutual funds can be applied on either
single or double category to determine gains/losses...


Multiple lots
listed for
easy review
and
application.
These can
be sorted by
holding
period
and/or unit
cost.




      Portfolio Manager
24
Improving Investment Tax Decisions with BI Portfolio Manager
Improving Investment Tax Decisions with BI Portfolio Manager




Topics :                 Importance of accurate records
                         What determines cost basis
                         What determines holding period
                         Lot-by-lot accounting
                         Tax reports
                         Effective tax decisions


     Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager

Tax Planning Reports

     Income Received: The Income Received Report tracks the investment income and
     capital gain distributions received by securities in your portfolio. Users can
     customize the information listed on this for reporting period, portfolios to include,
     asset types to include, and filtering activity by portfolio or individual asset. The report
     segregates securities according to type, and provides totals based on the range
     selected for the report.




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Improving Investment Tax Decisions with BI Portfolio Manager




                                     Ideal for tax filing!
                                  All the information you
                                  (or your CPA) needs.




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Improving Investment Tax Decisions with BI Portfolio Manager

Tax Planning Reports

     Sold Securities: The Sold Securities Report compiles important information
     regarding the sales of securities for a given portfolio. Users can customize the
     information listed on this report for reporting period, portfolios to include, asset types
     to include, and filtering activity by portfolio or individual asset. Sales activity is
     separated based on Short Term Activity or Long Term Activity.




       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
                                              Ideal for tax filing!
                                           All the information you
                                           (or your CPA) needs.




     Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Portfolio Manager provides several other reports to help investors
better manage taxes for their portfolios...

     Other tax reports include:
       Capital Gains
        Distributions
       Qualified
        Dividends
       Short-Term to
        Long-Term
        Holding Period
       Wash Sale
        Check List



       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Improving Investment Tax Decisions with BI Portfolio Manager




Topics :                 Importance of accurate records
                         What determines cost basis
                         What determines holding period
                         Lot-by-lot accounting
                         Tax reports
                         Effective tax decisions


     Portfolio Manager
31
Improving Investment Tax Decisions with BI Portfolio Manager
Putting it all together for more effective tax
decisions

Organized accurate record keeping:
     allows you to effectively manage the tax implications of your investment
     decisions;
     with lot-by-lot purchase detail, investors can not take advantage of several IRS
     approved methods to reduce capital gain taxes.
     weeding and feeding your investment portfolio for long term successful results!




       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Putting it all together for more effective tax
decisions
Additional Tax Management Tools: Taxable vs. Tax deferred Accounts
     Since BIPM provides for multiple portfolio management, it’s the ideal tool for segregating your
     various accounts, while still allowing for the combination of any or all of your portfolios on the
     various reports. This is particularly useful when managing your portfolios to hold investments in
     the most tax preferred account.


     For instance, it may be wise to hold stocks providing qualified dividends (i.e. qualified dividends
     are currently taxed at a 15% tax rate) in your currently taxable account, while holding stocks that
     do not provide qualified dividends (many Real Estate Investment Trusts) inside your tax
     deferred retirement accounts.


       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Putting it all together for more effective tax
decisions
Additional Tax Management Tools: Optimize gift and estate planning strategies
     BIPM’s lot-by-lot cost basis accounting provides an essential element for optimizing gift
     and estate planning strategies. For instance, you may determine that you wish to
     donate a security to a charity. Since investors often have multiple purchase lots of the
     same security, it would be quite advantageous to donate those purchases with the
     lowest cost. Without detailed purchase records, this would be impossible to do.




       Portfolio Manager
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Improving Investment Tax Decisions with BI Portfolio Manager
Putting it all together for more effective tax
decisions
Optimize gift and estate planning strategies
     When gifting to a qualified charity, your gift value is usually based on the market value
     at the time of the gift including the unrealized capital gain, and not the cost of the gift.
     In other words, you will be giving away a larger capital gain that otherwise would have
     been taxed if you sold the securities and then gifted the proceeds.


     BetterInvesting Portfolio Manager provides the tools you need for improved
     investment decision making, leading you to better investing results!




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Improving Investment Tax Decisions with BI Portfolio Manager
Improving Investment Tax Decisions using BI Portfolio Manager

     BetterInvesting Portfolio Manager will lead you to better
                portfolio management decisions.

     Please visit these web sites to find out more about the
            software, and to try a free demo version:

                             www.betterinvesting.org

                           www.biportfoliomanager.com
                                (developer’s site)

         Thank you for your interest in Portfolio Manager!
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