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State Street Global Advisors’ White Paper features best practices for year-end tax planning


State Street Global Advisors (SSgA) has released a new white paper titled, 2011 Year End Tax Management: How to Add Value in a Volatile and Uncertain Market. The report, which is available on SPDR(R) University (, details the year-end tax management strategies of seasoned advisors, reveals how exchange traded funds (ETFs) provide advisors and their clients with expanded opportunities to improve tax efficiency, and explores the implications of the Tax Relief, Unemployment Insurance Reauthorisation, and Job Creation Act of 2010.

"There’s no question market volatility is creating new challenges for advisors, however, it’s also presenting specific opportunities for proactive tax management that will provide value to clients," says Anthony Rochte, senior managing director and head of the North American Intermediary Business Group at State Street Global Advisors. "The whitepaper features actionable advice, delivered by three seasoned tax-aware advisors, is designed to help advisors maximize their clients’ after tax returns and position their portfolios for expected tax increases."

Highlights from 2011 Year End Tax Management: How to Add Value in a Volatile and Uncertain Market include:

Evaluate loss carryovers and asset allocation. The lifespan of capital loss carryovers can have important implications on which accounts to liquidate first and where to locate assets going forward. For example, if it appears a client will be unable to use up all losses, an effective strategy — assuming the investor holds both taxable and retirement accounts — can be to shift bonds out of taxable accounts and replace them with equities.

Get a head start in managing short-term gains. Short-term gains should be monitored closely and matched up with short-term losses, as the taxes due on short-term gains can erode total returns — especially for high income clients in the top tax brackets. Capital loss carryovers are also useful in negating short-term capital gains from a tax standpoint.

Bank current losses. While some investors and advisors neglect tax loss harvesting in years when investors have not registered significant gains, the strategy may not be a waste of time. Harvested losses can offset capital gains and up to $3,000 of net capital losses can be deducted from ordinary income on a tax return. Net losses above that $3,000 can be carried over to future years until they’ve been used up by future portfolio gains. If income taxes and capital gains rates are increased in the years ahead, as many expect, carryover losses will be especially valuable.

Accelerate gains. With many investors and advisors expecting a possible capital gains tax rate of 20% or more in the future, investors may want to take gains today at the maximum rate of 15%. When evaluating the opportunity to accelerate gains, it is important to keep in mind that the "wash-sale" rule, which requires investors to wait 30 days before repurchase, applies only to recognition of losses, not gains. Therefore, investors can sell a security to recognize the gain and immediately repurchase the security to reestablish the position.

Consider diversifying out of single stock positions. The annual review provides advisors with a great opportunity to talk with clients about concentrated stock positions and over-exposure to a particular stock. While many may be reluctant to sell the position and pay taxes, today’s volatile markets provide a timely reminder of the benefits of a broadly diversified portfolio.

Using ETFs for year-end planning. The broad array of low cost ETFs available makes managing losses at year-end easier. For example, financial stocks are ripe for tax loss harvesting this year. An investor with one or more stock holdings in this sector could sell their position to create losses and direct the proceeds into a financial sector ETF, such as the Financial Select Sector SPDR (XLF), to maintain diversified exposure to the sector. ETFs are also effective replacements for harvesting losses in mutual funds.

The seasoned practitioners who share their strategies for positioning client portfolios to take advantage of current opportunities and prepare for future tax increases in the white paper include Glenn Frank, Director of Investment Tax Strategy at Lexington Wealth, Jonathan J Oliver, a Managing Director Daintree Advisors Management, and Steven B Young, Chief Investment Officer for the Asset Management Group Curian Capital, LLC.

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