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.

Test Accounts Week 12

Week 11 was a short week with little change. The S&P 500 index was up 0.3%. Normally the movement in the robo-adviser accounts would have moved less than that. But they did better than the S&P 500 index. Betterment and Wealthfront were up 0.6% while Schwab Intelligent Portfolios (SIP) was up 0.8%. Part of the explanation are dividends. The first quarter ended during the week and with it more dividends. Betterment immediately reinvested the dividends in partial ETF shares. Wealthfront added the dividends to the cash position. The SIP web site is still evolving and doesn’t have a good transaction history yet. But it appears as though SIP also simply added the dividends to the cash in the account. Needless to say the S&P 500 index does not reflect dividends.

Folio Investing only moved up $4. Some of the ready to go portfolios (RTGs) gained a bit while others were down. Folio Investing also received several dividends. These are initially deposited in cash. Each folio that you have offers you the option of having dividends automatically reinvestment in the stock or ETF generating the dividend. But this only applies to dividends of more than $1.00. The smaller ones remain in cash. In our case we have small amounts of lots of stocks. Only Coca Cola paid enough ($1.54) to buy a small amount of their shares (0.03780).

All of the Folio RTGs had changes in their content. This does not automatically change the holdings in your folios.  But if you wish to follow the new content it’s a simple process. I elected to do this to the 4 RTGs that I have. This resulted in over a hundred trades to be executed on Monday at 11:00. Because I selected an annual commission, these trades do not have a commission.

Meanwhile the Lending Club account moved up another 0.3% last week. We still haven’t experienced our first bad debt. Although 3 of the 362 notes that have been issued are in the grace period. Two of these are new loans and one had a previous payment made.

I’m still trying to finish my 2014 taxes. If I get these done soon, I may have a mid-week update. Follow me on Twitter @billlanke and I’ll let you know when I make my next post.

W/E	S&P 500	BTRMNT	WLTFRNT	FOLIO	LND CLB	SCHWAB
16-Jan	-1.2%	0.0%	0.4%	-0.2%	0.0%	-0.2%
23-Jan	1.6%	1.1%	0.7%	2.0%	0.0%	1.0%
30-Jan	-2.8%	-1.5%	-0.9%	-2.0%	0.0%	-1.3%
6-Feb	3.0%	1.0%	1.0%	0.9%	0.0%	1.3%
14-Feb	2.0%	1.0%	0.8%	1.8%	0.0%	1.2%
21-Feb	0.6%	0.6%	0.4%	0.5%	0.0%	0.4%
28-Feb	-0.3%	0.2%	0.2%	0.3%	0.7%	0.0%
6-Mar	-1.6%	-1.6%	-1.8%	-0.9%	0.3%	-2.1%
13-Mar	-0.9%	-0.1%	-0.3%	-3.4%	0.2%	-0.7%
20-Mar	2.7%	2.1%	2.0%	3.5%	0.2%	1.0%
27-Mar	-2.2%	-1.0%	-1.1%	-2.3%	0.3%	0.5%
3-Apr	0.3%	0.6%	0.6%	0.0%	0.3%	0.8%