Now that the Senate tax bill has passed and is in the reconciliation process with the House tax bill, the Individual Investor Advocacy Committee of BetterInvesting’s board of directors encourages individual investors to share with their representatives in Congress their view of a controversial proposal in the Senate tax bill that could result in higher taxes for individual investors and investment clubs when selling investments.
Today, when an investor or investment club sells stock or other securities they own in a taxable brokerage account, they can pick which tax lot they want to sell if they have acquired multiple blocks of shares over time. The Senate Tax Reform Bill eliminates that choice and requires an investor or investment club to sell the first shares purchased. This concept is known as the first-in-first-out (FIFO) method and could have big implications for taxpayers.
“As you know, the oldest shares owned tend to have the biggest capital gain, which would cause more investors and clubs to realize larger capital gains than originally intended,” the IIAC says. “The Joint Committee on Taxation estimates that if this FIFO rule is approved, it would cost individual investors an additional $2.7 billion in taxes over 10 years.
“The proposed change originally would have affected both individual investors and managers of mutual funds and exchange-traded funds. However, the fund industry pushed back, and the Senate Finance Committee subsequently modified the provision by excluding fund managers. Individual investors and investment clubs would still be required to follow the new provision for sales of securities, including sales of mutual funds and exchange-traded funds. This provision is only in the Senate bill, not the tax bill passed by the House.
“This provision leaves individual investors and investment clubs with fewer choices when selling stock. We believe this discourages individuals from investing at a time when we hear Americans are not building enough reserves for their retirement. This proposal works against our long-standing mission of creating successful lifetime investors.”
The IIAC encourages those who feel that this proposed change is detrimental to their investment portfolio and their freedom of choice regarding its management to write their representatives in Congress. Email links can be accessed here:
The IIAC is providing this communique as an informational service to individual investors to alert them about this aspect of the bill. The collective voice of BetterInvesting members and other Main Street investors, who are both investors and voters, each contacting their representatives in Congress with a message in support of individual investors could have a significant impact.
BetterInvesting has also uploaded a sample letter at the BetterInvesting website. Individual investors can access it from the homepage or directly by clicking the link below:
Congressional leaders are anxious to pass this tax bill quickly, so those who feel strongly about this issue should contact their representatives as soon as possible.