I’m no tax expert, but I feel safe in saying that taxes will be a fact of life for a long time. Tax policies also will continually change at the local, state and federal level to make tax preparation a more critical task.
Chicago, for example, increased the monthly surcharge on telephones — both land lines and cellphones — by 56 percent as of Sept. 1. Chicago Sun-Times reporter Fran Spielman wrote that the increase was agreed to in an effort to avoid a property tax increase before elections. Property tax increases are “the third rail of Chicago politics,” she said. We suspect that many Chicagoans won’t notice the increased rate on their phone bills, even though it will amount to more than would a rise in property taxes.
The point here isn’t to discuss tax policy. Rather, it’s to remind investors to be more diligent regarding their tax preparation. Governments are facing the same problems many businesses have in funding pension liabilities, operations and projects.
The last couple of months of the year are the time to take stock of your portfolio and consider the best courses of action. Ask yourself how realizing capital gains will affect your tax burden and whether you should perform some tax-loss selling.
But we would also suggest you not spend too much time on the issue. Taxes are certainly important, but they shouldn’t rule your portfolio decisions to such a degree that you ignore the most important considerations.
As long-term investors, we’re already doing much of what we can to limit taxes. And as holders of individual stocks, we have more control over our tax burden than we do when investing in mutual funds, for which the fund manager makes the buying and selling decisions and the tax implications are passed through to the shareholders.