Five Critical Moves to Make Before December 31st

Keith Fitz-Gerald Dec 03, 2014

We’ve spent a lot of time in the past few weeks talking about how to maximize your investment returns.

But there’s another side to building wealth in the markets… keeping it.

If you’re thinking I’m going to launch into an article on “risk management,” that’s great, because it means you’re thinking like a market maven and that our time together is worth it.

But, actually, I’m not talking about risk management at all today.

I’m talking about five simple tactics – moves you can make right now – to legally minimize your tax bill come April 15th, 2015.

Most investors don’t pay nearly enough attention to this and, as a result, pay a terrible price down the line. I’ve heard every excuse in the book over the years as to why but really it comes down to two things: 1) they think it doesn’t matter unless you’re a 1%er or 2) that this is just a subject for high-powered CEOs with billions sheltered offshore.

That’s a shame because keeping more of what you make is a Total Wealth tactic that’s every bit as important as trailing stops, free trades, or even lowball orders – all of which we’ve discussed recently. Maybe even more so.

First, here’s why taxes matter.

In contrast to previous generations, the biggest problem we face today is not finding big winners – the markets are literally loaded with opportunity, if you know where to look like we do.

No, the biggest problem we face is the possibility of outliving our money.

The latest estimates suggest that by 2040 people will routinely be expected to live to 140. That’s nearly double the 90 years of age used by even the most aggressive financial planners and insurance salesmen today. Living to 100 simply isn’t that big a deal anymore.

We all need way more money than we used to.

Fortunately, with Total Wealth trends, tactics, and risk management, it’s not that hard.

If you invest $10,000 a year and generate 6.86% a year for the next 35 years, you’ll walk away with a cool $1.4 million in today’s dollars ($350,000 invested plus $1.05 million in gains). That’s according to CNNMoney’s Brian Stoffel.

The other thing to think about is that 6.86% is not a pie-in-the-sky number. It’s actually the true annualized return of the stock market since 1871. Capture a few 100% gainers, like we did with our first recommendation, Ekso Bionics Holdings Inc. (OTCBB:EKSO), or like my Money Map Report subscribers just did yesterday with Becton, Dickinson & Co. (NYSE:BDX), and suddenly the $1.4 million jumps exponentially.

Unfortunately – and here’s where these tactics come in – that means Uncle Sam will show up every April with his hand out. The U.S. government is bound and determined to take what you earn away from you.

And it’s getting worse.

Last year President Obama raised the maximum short-term capital gains tax rate to 39.6% from 35%. At the same time, he’s boosted the top tax on dividends to the same amount. And, in a still more controversial move, he’s also tacked on an additional 3.9% to pay for the Affordable Care Act, better known by its moniker “Obamacare.”

Those increases may seem small in the scheme of things, but every one of these changes pushes your financial security further away.

That’s why you want to make these five moves right now to ensure that you are as tax-efficient as possible so that you can legally keep what is yours… and build wealth for decades to come.

First, hold the right investments in the right accounts.

In general, you want to hold tax-efficient investments like stocks, index funds, master limited partnerships (MLPs), and ETFs, for example, in regular, non-retirement, brokerage accounts.

Put all the inefficient stuff, like bonds, high-dividend stocks, and real estate investment trusts (REITS), into retirement accounts where taxes are minimized.

Second, consider losing money selectively.

Normally, I hate taking losses. But if you’re coming into the end of the year with some big winners, it can really pay off to let go of some of your underperformers at a loss – right now.

That’s because the IRS allows you to use capital losses as a way to offset realized capital gains. You can even carry $3,000 in losses forward for use at a future date. I think that’s one of the very few sensible IRS regulations there are.

Third, consider shifting all or a dominant share of any Treasuries and corporate bonds you own to municipal bonds.

This boosts your income by immediately converting compounding to a tax-free activity.

Fourth, try to hold your investments until they’re long-term.

Time your investments – not the markets. What I mean by this is that, whenever possible, you want to hold your stocks for at least 12 months. That way you’ll qualify for more favorable long-term tax treatment than you would if you sold inside of a year. I realize that this is getting harder as the markets get choppier thanks to high-speed trading and increasing computerization, but that doesn’t invalidate the thinking.

It’s worth noting, by the way, that this is a very important consideration in and of itself because you can combine this knowledge with some of our favorite risk management techniques like stop-losses, trailing stops, averaging in, and more. Just know that if you sell within 12 months, your tax liability is higher.

Fifth, do any short-term trading you want to do in your IRA or tax advantaged retirement accounts.

By doing so, you’re effectively saving the 39.6% maximum tax rate on realized gains and, instead, deferring it to a later date.

Obviously, I’ve just scratched the surface here.

You can take this game as far as you want. Thanks to the hopelessly convoluted nature of our tax system, there’s a billion-dollar industry centered on “internationalizing” your assets.

Some of the more commonly accepted practices that can take legally saving money to the next level include relocating offshore, reincorporating your assets in far flung places, or forming family trusts just to name a few. But be very, very careful. It’s hard to know if you’re getting good – or even legal – advice.

In closing, I want to leave you with one thought.

I’m not one of those guys who doesn’t want to pay taxes or thinks you shouldn’t.

The way I look at things, paying taxes is a good problem to have, because it means you’ve had a good year.

What I have a problem with is forking over money to a government that wastes it and which is acting at the expense of the people it ostensibly serves. But that’s just me – you may have a different opinion and I respect that completely.

At the end of the day, what matters most is that building wealth has two components – making money and legally doing everything you can to keep it.

Because you’re sure gonna need it.

We all will.

Be back with you in a couple days with a closer look at an “Unstoppable Trend” that seems to be slowing down…

Best regards until next time,


27 Responses to Five Critical Moves to Make Before December 31st

  1. Barry Sorkin says:

    Afternoon Kieth, hope u had a great Holiday dinner

    Its not what u make buit what u get to keep after taxes that counts

    Right On


  2. John Tennant says:

    Great piece to remind people of these facts. One other important fact for those who manage to keep in the 15% bracket: dividends on long term holdings and long term capital gains are tax free in taxable accounts! All the more reason to carefully plan a tax strategy at the end of the year.

  3. Dale says:

    Appreciate the insight, some excellent food for thought. Thanks again. Keep on keepin on.

    • Keith says:

      Thank you very much for the encouragement, Dale. It’s much appreciated. Best regards and thanks for being part of the family, Keith 🙂

  4. Celeste Ferenczi says:

    Why should you not hold MLP’S in a retirement account? All my stocks are in a retirement account. Is that bad?

    • Regina says:

      I also have had this problem at times (and I wish I had the 36.9% tax problem).
      The reason MLPs are not recommended for IRAs (or 401Ks/Roth IRAs, etc.) is that they often throw off Unrelated Business Taxable Income [UBTI} which is shown on the K-1 you receive from them. If you get more than $1000 UBTI, you will need to pay taxes on that amount even though growth and dividends are not taxable at that time. You should check with your tax advisor if you are getting close to this limit (may need to set up a new EIN for that account since the payment must be from the IRA account which owes the taxes).

      In addition, even if UBTI is not a problem, these partnerships are structured so that some of the income you receive from them is tax-deferred so is not taxable when received, but decreases the purchase basis (increases the cap gain) for when you sell. You don’t get this advantage in a tax-deferred account like an IRA.

      Hope that helps Stay profitable.

      • Keith says:

        Thanks for your reply Regina. Well thought out, informative and spot on the money – pardon the pun. Not only do I appreciate you stepping up, but Celeste does, too I am sure.

        Best regards and thanks for being part of the family, Keith 🙂

  5. Felix says:

    Along with this article on gov and taxes, the following short video is the GOV REFUSING IBM’s FREE GIFT of
    approx $900. Can’t believe it, they refuse $ that is given to them and steal it from us to give away. Mindbogglingly.

    • Keith says:

      Thanks for highlighting this Felix. I am honored to appear on Stuart’s show almost weekly and this is a great take on an issue that sadly didn’t get enough press. I don’t know the inside details on the story entirely, but I do have a sense that our government is badly broken on so many levels that it’s hard to know where to start. Sadly, this isn’t just an issue for the Democrats nor the Republicans but, rather, all Americans.

      Thanks for being a part of the Family and best regards, Keith 🙂

  6. H. Craig Bradley says:


    No male in my family history ever lived to 100, most die well before 90 because of hereditary systemic cardiovascular disease and eventual heart failure. I am the only surviving member of my family now. All dead from heart failure, except my late mother. True, we all do live much longer than in the 1930’s ( At best till age 50), but 100 or even 90 for me might be quite a stretch.

    My Uncle, at 92, tells me its mostly due to better diets compared to the 1930’s. Better diets means higher standard of living. Is that today’s trend? The Dietician at the local hospital says we have a long ways yet to go with healthy diets and refers to the traditional meat and potatoes American diet as SAD ( Sad American Diet). Its why we still have Cardio Units in Hospitals. Acute Care is where the health care dollars are concentrated, not in prevention or even prophylactics in Medicare. Ditto in Canada with National Health Care. Paying Obama Care insurance premiums in itself does not do anything by itself for your health.

    From my research, the only sure way to beat the odds is with lifestyle management. That means becoming a full-on vegetarian ( like 7th Day Adventists). Fish, vegetables, and fruit. No dairy, no meat, no beef. The late Southern Calif. fitness guru Jack La Lanne famously said: ” If man made it, don’t eat it”. He only ate fresh, juiced fruits and vegetables. He invented fitness before it was chic. He lived to be 95 too. Fitness and Diet was his lifestyle.


    • Keith says:

      Thanks for sharing Craig. That’s a very interesting take and one I agree with. Diet, exercise and logical choices make a huge difference. Of course, medicine helps but it’s always good to have a great healthy base to begin with.

      Best regards, Keith 🙂

  7. George Dempsey says:

    Your right, paying taxes is a privilege when those taxes push America forward. That being said, It just isn’t happening. Infrastructure is in the worst decline, the dollar is being debased by “to big to fail banks and sometimes corporations” and the social security system has turned into a social handout system. I have made several direct visits to the social security office to process applications for social security and Medicare for I and the wife in Colorado. You’re greeted with a banner showing middle class people entering retirement, but when you enter the waiting room it’s entirely different. Over 50% of the attendees are under 30 something looking for a hand out. I and the wife have worked our entire life and at 69 we have more then paid in, but what I’m seeing renders your heart sick. Yes it’s good that the system cares for people that have lost a bread winner, but that isn’t the case. Single young studs with nothing wrong with them applying for benefits and young women too. If, I did my business on line I wouldn’t be aware of this. Colorado has one of the lowest unemployment rankings in the country, I ask myself how can this be? I can’t imagine what higher unemployment States are facing as dead beats game the system. I remember a lady that called into a talk show and bragged how,” her and her husband didn’t work.” (again 30 something). They had three children. When asked by the Host, if they had medical issues, she promptly replied,” No, They set at home watching TV all day and smoke pot.” She further replied why did they need to work when the system provided them with nearly $4000.00 per month in freebies. Paid rent, food, clothing and medical. Obama isn’t in touch, just as most Democrats or Republicans. It’s either to far right or to far left. I have hard working children and grandchildren who are paying for this deadbeat crap, just as have I and my family members. It seems that the whole game is rope a dope. I really feel duped from what I was taught as a child growing up to what I see today. Taxing capital gains at these rates just further infuriates me – just so some lazy ass people can sit on their butts and do nothing and while there at it, teach another generation to do the same. The middle working class died a long time ago in America, they just haven’t planted us yet. I see a revolution coming to America, there is a quiet, reserved generation that is slowly waking up to their lies. We’re pissed! This bleeding heart business has gotten out of control. My wife is a foreign national and we had to go through the front door, process the paper work, and obey the laws. She has earned her right to be an American and she didn’t screw the system to get it. She has worked diligently for 43 years and I since I was 14 years old have paid into the social security system. I have gotten to the point where America isn’t so beautiful anymore. Its criminal.

    • Keith says:

      Hello George and thanks for sharing your story. I agree with many of your points and have a similar take based on similar observations. It’s very frustrating to me as well. But, if there is a glimmer of hope in all this, it’s that Americans eventually do get the message and band together. I only hope we don’t have to destroy ourselves and this great country first.

      Best regards and thanks for being part of the Family, Keith 🙂

  8. Linda says:

    If you are interested in health and diet based on SOLID science read “The China Study” by Collin Campbell!! Can’t tell you how much it’s changed my life.
    Now if I can follow Kieth’s advice for finances, I’ll be in great shape. Thanks for all the solid ideas Kieth. I look forward to every new article.

    • H. Craig Bradley says:


      SOLID SCIENCE is not the next diet fad, for sure. Its pretty much the same M.O. if you consider Medicine real science. For REAL advice, try a M.D. such as Dr. Joel Fuhrman, M.D. who did his residency in nutrition ( rare ) and writes books to help people eat Healthier, such as ” Eat to Live”. Well researched, too.

    • Keith says:

      Thanks for the kind words, Linda. I will do my best. I am not familiar with The China Study but will be picking up a copy shortly. You may or may not know this, but I have a keen interest in clean living so this is something I look forward to reading very much. I hope we get a chance to continue the conversation.

      Best regards and thank you for being part of the Family, Keith 🙂

  9. Malcolm Jensen says:

    Leaving aside whether it is moral to tax wage earnings at a higher rate than that at which we tax earnings on capital, tax law increases are passed by congress and signed by the president. To say that Obama has raised taxes is either naive or dishonest. Let’s try to be fair, and not alway pander to self-centered loudmouths.

    • Keith says:

      Hi Malcolm. You are, of course, correct and your point is well taken. However, it is his administration.

      This is not, however, a dig at the President. If it were another individual, I would have used that person’s name instead – regardless of party. Leadership begins at the top and the buck, so to speak, stops there as well.

      Best regards and thanks very much for the well placed jab, Keith 🙂

  10. Marlin Harless says:

    What are your thoughts on buying the Wasatch-Hoisington U.S. Treasury Fund (WHOSX) now and holding it for at least a year. It’s a no load fund that charges 0.71% per year in management fees. Jim Rickards is recommending it in his Strategic Intelligence! WHOSX is an actively managed mutual fund. Rickards says its the best way to invest in Treasury bonds. He also states that fund managers can adjust the mix of bond holdings in response to changing conditions. It delivers an impressive 8.1% compound annual return over the past decade. Jim states management wouldn’t hesitate to concentrate assets into 30year Treasury bonds because the collapse of the $ would send their prices soaring. During the last crisis in 2008, the Treasury bond Index rose 15% while the S&P 500 Index crashed 28%. Jim Rickards says it’s “One Safe Haven Where The Elites Hide Their Money.” Hoping for a reply!

    • Keith says:

      Hello Marlin.

      Thanks for asking. Jim is a very intelligent guy for whom I have a lot of respect. The WHOSX is a great choice if it meets with your objectives and risk tolerance. As always, with any fund, you want to make sure management has the capacity to make those kinds of discretionary choices when the going gets tough. Another fund that I find very compelling is the NEARX from U.S. Global which you may have an interest in checking out.

      Best regards and thanks for being part of the Family, Keith 🙂

  11. Robert in Vancouver says:

    I didn’t realize Americans could carry forward only $3000.00 in capital losses. That seems very unfair.

    Canadians can carry forward all capital losses indefinitely.

  12. David R says:

    Here’s the IRS brief summary of the loss carry forward rules:

    If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is the lesser of $3,000, ($1,500 if you are married filing separately) or your total net loss as shown on line 16 of the Form 1040, Schedule D (PDF). If your net capital loss is more than this limit, you can carry the loss forward to later years.

    So $3000 loss is the maximum offset to personal income that can be used in any single year to reduce your taxable income. The full excess of losses (including previous carry forward losses) over gains reduced by offset used is your carry
    forward to future years..

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