Tax efficiencies
The wash sale challenge and a smarter solution
Fall is traditionally a busy time for tax planning. But many firms no longer wait for the fall and are realizing losses throughout the year as opportunities arise. As you look to maximize deductions and minimize your tax burden, wash sales can become an operational headache. Let’s dive into the world of wash sales and explore how intelliflo redblack can help streamline tax-loss harvesting at scale.
The wash sale conundrum—and why wash sales are important
A wash sale occurs when you sell a security at a loss and purchase the same or a substantially identical security 30 days, either before or after the sale, at a loss. When this occurs, the IRS deems this a disallowed loss and the cost basis of all remaining shares is adjusted. RIAs and portfolio managers who make lot-level tax-loss harvesting a regular part of their process know the challenges of tracking substitutes for each client and trading those exceptions at scale. Additionally, ensuring that wash sales are not created across accounts is challenging given the complexity of high-net-worth and family office clients.
Wash sales are significant because they impact the ability to claim capital losses, which can be used to offset capital gains and potentially reduce taxable income. The primary consequence of a wash sale is that the loss from the sale cannot be immediately deducted. Instead, the disallowed loss is added to the cost basis of the repurchased security, deferring the loss until the repurchased security is eventually sold outside the wash sale period.
The ability to configure, track and trade multiple securities at the lot level, replace them with the correct substitutes while remaining within the confines of the client’s investment policy is a complex process especially when dealing in multiple accounts for a single client, let alone multiple accounts for multiple clients.
For investors managing households or families of accounts including separately managed accounts (SMAs) and partially-owned accounts, tracking wash sales across all holdings can be complex and time-consuming. Traditional methods often rely on manual checking and even automated checks are typically limited to the scope of a single account, leaving room for error and missed opportunities. Adjusting the cost basis for wash sales after the fact is also complex and time-consuming and often requires manual effort. Leveraging technology to track, trade and remain in compliance is the only way forward.
Strategies for effective wash sale management
Managing wash sales effectively is essential for optimizing investment performance. intelliflo redblack allows investment advisors to do this at scale with:
Real-time detection
This includes firm and/or client specific rebalance rules. Implement systems that monitor trades as they occur to identify potential wash sales immediately – before the trades are executed. This proactive approach helps investors address issues promptly and maintain accurate tax records.
Comprehensive account management
Aggregating trading activity across families and households is crucial for compliance and wash sale tracking. intelliflo redblack ensures potential wash sales are detected and managed across all related accounts, providing a complete tax picture.
Sequential rebalancing
Utilizing asset location preferences, advisors can allocate client assets while optimizing security selection based on the taxability of client accounts. intelliflo redblack does this seamlessly during the rebalancing process with no manual intervention.
Tax-loss harvesting
intelliflo redblack enables advisors to sell securities at a loss either in full or in part, automatically buy a specified substitute, and simultaneously create a restriction to prevent liquidation of the substitute.
Proactive record-keeping
intelliflo redblack automatically tracks and prevents wash sale transactions, and provide a history of loss harvesting actions—allowing advisors to keep accurate records of all transactions, including purchase and sale dates and the cost basis of each security.
A smarter solution: real-time wash sale detection across account families
At intelliflo, we understand the challenges investors face with wash sales. That’s why we’re excited to introduce a new feature of intelliflo redblack that utilizes sophisticated logic to ensure accurate and real-time wash sale detection across families of accounts.
Our wash sale detection goes beyond simple identification. intelliflo redblack’s new wash sales feature enhances tax efficiencies, particularly as we approach the fall season. Its sophisticated logic ensures accurate, real-time wash sale detection across all accounts for a family or taxpayer, including SMAs and partially owned accounts.
intelliflo redblack’s multi-pass wash sale evaluation logic detects potential wash sales across accounts even when rebalancing multiple individual accounts as part of a rebalancing or trading session. This ensures a holistic view of your portfolio and minimizes the risk of wash sales derailing your tax efficiency goals—while staying compliant and maximizing tax benefits without manual intervention
Optimizing tax management for fall and beyond
Navigating the complexities of tax management and wash sales requires a strategic approach and a thorough understanding of the rules. By implementing real-time wash sale detection, considering all accounts in a family or for a taxpayer, using a multi-pass evaluation, and maintaining detailed records, investors can effectively manage their portfolios and optimize their tax situations.
As you approach the fall season and delve into tax planning, consider how intelliflo redblack’s wash sale detection can empower you to make smarter investment decisions and navigate the complexities of tax optimization. By integrating intelliflo redblack’s advanced wash sale detection into your tax management strategy, you can optimize your portfolio and ensure compliance with IRS regulations.