Tax Workshop

Tax Free Investing

Municipal Bonds• Alternative Minimum Tax• Can apply to Private Activity Municipal Bonds• Eliminate AMT in your municipal portfolio by avoiding Private Activity Bonds

Tax Equivalent Yield Calculation

*Municipal Bond Yield / 100% – (Combined Federal + State Tax Rates)

Example:• Municipal Bond Yield 4%• Tax Bracket 36% Federal and 4% State• 4% / 100% - (36% + 4%)• Taxable Equivalent Yield = 6.67%

Tax Efficient Investing

Active Management • Matching gains and losses to minimize tax impact.

Selective use of investments within IRA accounts versus taxable accounts.• High turnover strategies• Strategies that have more short term capital gains• Partnerships that create K1’s

Unified Managed Accounts• Better management and control of capital gains• Maintains high level diversification

Exchange Trade Funds (ETF’s)• Low turnover in holdings result in few to no capital gains. May be good

for taxable accounts where capital gains tax is a concern.

General Tax Issues in Portfolio’s

• Harvesting Gains before tax increases

• Harvesting Losses to utilize later or to offset gains

• Utilizing Loss Carry Forwards

• Mindful of buying into pooled gains such as in mutual funds

• Position higher taxed investments into tax deferred accounts such as IRA’s.

Cost Basis

Currently• Custodians only report proceeds from sales. Tax payers have to show gains

and losses.

What is Coming• Custodians and broker-dealers will be required to report the adjusted cost

basis of sold securities, including whether the gain or loss is short- or long-term, to the IRS and taxpayers

• Taxpayers are still responsible for reporting accurate cost basis to the IRS on their tax returns for all securities sold

Cost Basis

Phased in over three years, 2011–13• Equities acquired on or after January 1, 2011 • Mutual funds, ETFs and dividend reinvestment plans• (DRIPs) acquired on or after January 1, 2012 • Other securities, including fixed income and options,

acquired on or after January 1, 2013

Cost Basis

• You tell the custodian what accounting method to use.

• Changing the accounting method  Other than for securities using average cost, the default cost basis method can be changed at any time and the new default will be applied for all future trades.If you wish to assign a specific lot (versus purchase) to a particular trade, you may do so at the time of trade or before the trade settles. The cost basis method for the specific trade cannot be affected after the trade settles.

2010 Basis “Step-Up” Rules

• Estates with capital gains in excess of $1.3 Million should review their estate plan carefully

• Estates may assign up to $1.3 Million in basis increase to estate assets.

• Estates may assign an additional $3.0 Million in basis increase to estate assets passing to a surviving spouse outright or in a martial/QTIP Trust.

• As a result of the unlimited estate tax exemption in 2010, many estate plans, as drafted, would not pass assets to a surviving spouse in a Marital/QTIP Trust

Thank You

On Behalf of All of Us atWealthTrust Arizona

Thank You