Pub. 2 2020 Issue 5

21 nebraska society of cpas W W W . N E S C P A . O R G Investment analysis software can enable you to calculate how the portfolio would have performed during the COVID-19 outbreak, the 2008 mortgage crisis, and the 2001 tech bubble, to name a few. for the investor. When taxable accounts have positions with unrealized losses, the investor can sell these investments, wait for the wash sale period to end, and repurchase the assets within the same account. This generates a useful capital loss while enabling the investor to continue holding the desired securities, albeit with a reduced tax basis. The greater challenge is when the account has accumulated gains, par ticularly to such a degree that it enhances the i nhe rent por t fol io r i sk. When t h i s occurs, it is necessary to do two things simultaneously: strategically reduce the position of the inf lated asset, and look for sale opportunities throughout the year that will generate losses which can offset the gains from the previous step. Sachin Shah, chief operating officer of 55ip, a Boston-based software company that engineers automated investment rebalancing strategies for financial advisors, recommends a three-step approach: 1. A tax-prudent transition that pivots clients from their current strategy to one that is better aligned to their risk profile while adhering to a specific tax budget established by their CPA. 2. Ongoing tax management that entails tax gain and loss harvesting throughout the course of the year. 3. Tax-focused withdrawals that enable clients to access funds without accruing a heavy tax liability. The need for consistent rebalancing was readily apparent earlier this year when financial markets fell sharply due to the COVID-19 outbreak. Disciplined investors rebalanced their portfolios after the S&P fell by nearly 30 percent. Rebalancing at that point was unusually tricky since vir t ually ever y securit y type lost value during the collapse. Yet, adhering to the target allocation enabled investors to acquire high-value securities at bargain prices. T h r ou g hou t t h i s p r o c e s s , c l i e n t communication is critical. It falls upon the investment manager to explain why rebalancing is necessary even though it may adversely affect investment returns during bull markets. The conversations may be difficult, but the benefits are especially apparent during retractions. t David Tepp, CPA, PFS, MBA, is the managing member of Tepp Financial Planning, an independent wealth management firm in Westfield, N.J. He may be reached at dtepp@teppfp.com . This article was reprinted with permission from the New Jersey Society of CPAs. Do Your Clients Need Attorney Prepared  Prompt and Affordable Filing Fees and Costs Included NE or IA Standard Organizations: Incorporation $449.00 Nonprofit Corporation $449.00 Limited Liability Company $499.00 Professional Corporation $549.00 Additional States Available  Please Call for Pricing L OW -C OST I NCORPORATION S ERVICES ? 7602 Pacific Street, Suite 200 Omaha, NE 68114 phone: 402.391.2400 fax: 402.391.0343 email: tom@whitmorelaw.com http://whitmorelaw.com