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Tax Harvesting with SMArtX Advisory Solutions

The word Harvest, symbolic during the Fall season, has its origins from the 5th century and the Anglo-Saxons haerfest “autumn”. An old term used in modern society today, to harvest means to gather or refers to the season itself for gathering crops. In investing, we have adapted the word ‘harvest’ to refer to end-of-year tax-planning, performed on behalf of clients, which seeks to reduce their tax liabilities by offsetting capital gains with losses. The net effect of harvesting is to reduce a client’s total tax bill and how much they need to pay the government. 

The amount saved through efficient tax harvesting practices is significant—particularly offsetting short-term gains that may be taxed at 30% or more. While there are several tax harvesting solutions in the industry that can be actively employed throughout the year, such as tax efficient trading and substituting one security for another, the timing for such maneuvers matters as all trades must be executed before the year is over.  Furthermore, though tax lot harvesting applies only to investments held in taxable accounts, the harvesting tools being implemented need to make sure wash sales are being monitored across all accounts. 

At SMArtX Advisory Solutions, we have developed a tax harvesting solution that leverages our technology to help advisors potentially maximize better after-tax results. Specifically, our software platform utilizes real-time trading and intra-day reporting technology to instantaneously perform a complete analysis of a current portfolio across an entire set of accounts. Advisors can combine accounts into households, set up tax harvesting rules and goal sets—clearly identify individual tax lots within the same security—and select which tax lot will be harvested.

Unlike other tax harvesting tools, SMArtX’s technology is distinguished by the Investment Book of Record being kept at the sleeve-level. This facilitates tax lot tagging to effectively manage multi-sleeve portfolios in a Unified Managed Account and multi-account (Unified Managed Household) tax harvesting.  

This solution means that, for any given security, an advisor can compare an individual tax lot against the current market price and decide when to harvest.  If the account shows tax lots both above and below the current prices, a decision can be made whether to harvest a gain or harvest a loss. Furthermore, SMArtX enables substitutions of a highly correlated security to ensure relevant exposure of a particular asset class or strategy. 

Whether reducing a client’s tax liability, deploying cash savings for new strategies, or adding to an existing strategy, performing year-end analysis to identify potential tax-saving opportunities is always in season.