Mid-Year Tax Planning Tips

This week we’re talking about mid-year tax planning tips and how you can potentially save yourself from some large tax bills in the future by simply reading this article!


I love to do projects around my house and this weekend was a fun one. I just had new counters installed and was working on the backsplash. 


Oftentimes I am not one to read directions all the way through before beginning. But, before I stuck that first piece on the wall I thought, hey, maybe if I’m going to spend the money on this product I should read all the way through to make sure I’m not missing anything like any tips that they would have to make it last longer or stick better, resulting in a better end product. 


It’s a good thing that I went back to read the directions because I would have missed out on some valuable tips which would have affected the end result. 


This week we’re talking about tax planning tips and just like my backsplash, if you miss out on planning now, you might not see the effect right away, but come tax time in the future you might be seeing the consequences of not following the tips outlined in our blog. 



We’re midway through the year and I think it’s important to talk about tax planning tips. 


You might be thinking man, I just got over tax season. I don’t even want to think about taxes right now, but now is the exact time that we should be thinking to plan ahead.  


There’s one specific area that I want to talk about today because if we wait until December, January, or tax time next year, there’s literally nothing you can do about it, and that is the area of capital gains tax. 




Yes, we all know about capital gains tax if we sell a house or property, and then that tax is due. It is important to plan for that when they’re making a big sale with their home, property, or even a stock that they might’ve had for some time. 


There are other capital gains that can be overlooked, but still, cause issues and tax problems in the future. However, a lot of these tax problems can be avoided and managed if done in the right way. 

For example, a lot of times we see that people have a portfolio of stocks, mutual funds, and/or bonds and we call that non-qualified, meaning that it is not in any type of government-sponsored qualified plans like an IRA, ROTH or 401K.  How the capital gains tax works on qualified types of accounts is different and it doesn’t matter what trading goes on in those accounts because you won’t have capital gains tax. 

However, in your brokerage accounts, you will have gains to pass through to you that you might not even know about. 


Most people know that if you sell it then you might have to pay some big capital gains. But oftentimes people think, well, if I just hold on to this, I don’t have to pay capital gains.  


That is true with things like individual stock or real estate. However, it is not true with mutual funds; not 100% anyway. 


Why is this? Because in the mutual fund you own a group of stocks and you are not the only investor, there are thousands of other investors.


If we look back to March of 2020, the stock market was going crazy. Even if you didn’t sell anything and just left everything the way it is, other people were selling. What happens is the mutual fund has to sell. 


Now, let’s look at one example. A lot of funds had a great percentage in Amazon. 


Amazon was poised to do well last March when everybody was stuck at home. However, if you had that inside of a fund, they had to sell it. They can’t decide to keep this stock because they have to manage the fund prospectus. (That’s that pie chart.) 


So they had to sell some of Amazon or Apple or some of these companies that were really high and had done really well. Probably not the best time to get out of some of these companies, but because people were selling and they had to sell.


Quote about taxes, tax tip, bertram financial

Now if you kept that fund and you held on to it, then at the end of the year the Mutual Fund ended up with a capital gain. 


The mutual fund doesn’t pay the capital gains tax, rather they funnel it to you and all of the other holders of that mutual fund. 


This means that you’re paying capital gains that were funneled through to you, even if you didn’t sell. 




Now, you may be wondering why you had such a big tax bill this year on your brokerage account or your non-qualified account. 


If you’re unsure why then this is something you need to address because this can be avoided. In fact, we have a previous article with our portfolio manager, Guy, on tax-efficient investing where he talks about the importance of making sure that your account is being managed appropriately against paying additional taxes. (You can read the full article or watch the video here.


The reason I’m talking about this now is if you haven’t watched that, go back and do it now because again, come December, there’s a lot less we can do if we start planning now and look at what’s taxable. 


It’s not that you’re trading to trade just for taxes, you’re trading to understand where to be tax-efficient, but also to take advantage of opportunities. So you’re not giving up growth to be tax efficient. 


Instead, they’re going hand in hand. It’s becoming coordinated, so if you have a large amount in non-qualified brokerage accounts then we really need to talk now because if you don’t take a look at what you can do now, you might end up with another big tax bill next year and you don’t want that. 




Tax Tip Quote - Financial Advisor WisconsinOn the reverse side, even if you don’t have all of the flow-through taxes you end up paying now then what happens later is that people end up with this large amount in one fund. Then, when they need the money they have to sell and experience a large capital gains tax. This scenario should never be the case. You want to make sure that your money is available to you when you need it without big tax consequences. 


Again, if you have a non-qualified account, please reach out to us and we’ll just do a quick review to see if your current setup is already tax-efficient or if there is room to improve. If what you have is good, then it will be obvious, but if it is not, if there are tax problems brewing, you need to understand why and what you can do! 

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