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A Senate Bill Potentially Limiting Tax Choices

TD Ameritrade, the custodian for our brokerage accounts, has reviewed the Senate Tax Cuts and Jobs Act, which was released last week. Section 13533 of the Senate Bill imposes a single cost basis methodology for investors, “first in, first out” (“FIFO”), on all sales of securities (except mutual funds).

For the average investor, this means possibly being required to pay the highest capital gains taxes where a stock has appreciated over time.

TD Ameritrade strongly opposes this provision, believing it will harm individual investors by eliminating their freedom to decide when to take losses or gains on their investments. This could potentially result in an increased tax burden.

An Example

An individual holds a significant amount of a company’s stock, accumulated over a 20-year career. Now retired, this shareholder wants to sell some company stock to diversify his or her portfolio. Assume the purchases over time range from $5 per share up to $90 per share, but the stock now is trading at $50.

If the stock is sold at $50, rather than being able to take losses on the stock purchased above $50, the Senate Bill could require this individual to pay capital gains taxes on the appreciation of the stock from $5 to $50. That is, even if the shareholder has experienced sizeable paper losses on the purchases above $50, the Senate Bill might force him or her to pay taxes calculated on the largest gains possible.

We agree with TD Ameritrade that this is not fair. We, too, feel the Senate should stand up on behalf of individual investors and reject imposing a FIFO cost basis requirement on sales of securities.

What Can You Do?

If you are concerned about these changes, you can contact your congressional representatives today and express your views. TD Ameritrade has created a site www.tdameritrade.com/takeaction that will enable individual investors to stay informed and easily reach out to their government representatives on issues that matter to them. The site hosts a summary of current issues, along with template letters.

If you have any questions, please contact us at info@kahlerfinancial.com.

*TD Ameritrade and Kahler Financial Group  are separate and unaffiliated firms, that are not responsible for each other’s services or policies. TD Ameritrade does not recommend or endorse any advisor that utilizes its brokerage or custodial services. TD Ameritrade does not monitor, and is not responsible for, communications between advisors and their clients. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. All rights reserved. Used with permission.

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