Tax Implications

I just finished filing my tax return for 2014. I do my own taxes and use H&R Block desktop software. Normally doing the capital gains and losses is not a big deal since the vast majority of our investment activity is in non-taxable accounts. We only had small taxable accounts at Fidelity and Schwab. This year I did import data from both into the tax preparation software. That seemed to work pretty well.

But 2015 will be a different story. Four of the five test accounts will be taxable. Only the Lending Club account is non-taxable. By their nature, the other four will potentially generate a large number of capital transactions. Unfortunately, I won’t know the specific impact until after the end of the year. But I did look at their web sites to get a sense of what will happen.

Folio Investing will have the largest number of transactions. They indicate that they produce a transaction file that can be imported by tax preparation software. There are apparently some limits on the number of transactions that can be handled, we should be well below that number.

Betterment will have the next largest number of transactions and they indicate that these can be directly imported. Wealthfront was a little vaguer. They said that tax information would come from Apex Clearing House. Fortunately this test account probably won’t have a large number of transactions.

Schwab’s Intelligent Portfolios web site still isn’t completed, but I suspect an import feature will be available just like a normal cash account

The robo-adviser wars continue. In the week 11 update I mentioned that Wealthfront enhanced tax loss harvesting by introducing individual stocks in the portfolio mix. But this only applies to accounts with over $100,000. Betterment’s response was to eliminate the minimum account balance required to enable tax loss harvesting. I have not yet decided if I will use this feature.

Hopefully these tax complexities will be a one year problem. Over the next few months I hope to close most of these test accounts and get back to a few IRA accounts.

My next weekly update will be this weekend. Follow me on twitter @billlanke and I’ll let you know when I update the blog.