TAX NEWS - JUNE 2010

U.S. Tax: Rockefeller Financial's Gelfand Authors White Paper Addressing Investment Impact of Changing Capital Gains Tax Rates

With Capital Gains Rates Positioned to Rise, Analysis Examines Arguments for Selling Winning Positions Now Versus Selling Them Later

NEW YORK, 01 June 2010 -- Matthew Gelfand, Ph.D. CFA, CFP®, an economist and Senior Wealth Advisor at Rockefeller Financial, a leading global wealth management firm serving high-net-worth individuals, families, family offices, trusts, foundations and endowments, has authored "Pay Now or Pay Later?  Capital Gains Harvesting with Changing Tax Rates," a white paper providing a careful analysis of the choice confronting many investors: whether to realize capital gains on investments now while tax rates are low, or hold their investments into the future although they will likely be taxed at a higher capital gains rate assuming such investments remain profitable.  The white paper also appears in the spring 2010 issue of the Journal of Taxation of Investments.

Central to the white paper is the precise tradeoff that exists between paying capital gains taxes today with rates at 15%, versus keeping gains unrealized until a future date.  The benefits of paying taxes at lower rates are clear.  But Gelfand argues that recognizing the opportunity cost is also important: every dollar an investor pays in taxes today on realized capital gains could instead remain invested, potentially earning further gains (and interest or dividends) until some future date of sale, at which point the investor would pay greater taxes on both the initial dollar and the resulting capital gains.  If those future gains were large enough, they could more than compensate for the higher taxes, leaving the investor in a better financial position.  If the future gains were too small, however, they would fail to cover the additional taxes.  It's that tradeoff that leaves investors with a tough choice.

According to the white paper, the nature and purpose of the investment, as well as investment performance, are important considerations, among others.  Gelfand's analysis posits that only in some cases would premature selling be profitable, and explains break-even conditions for considering the sale of winning positions in the current environment versus selling them later.