Getting Started

This screenshot displays the entries for your portfolio. Enter one or two owner names and the other information. With two owners, tax rates assume a joint income tax return.

NewPortfolioInformation
 

The next image displays entries for a specific account, already filled in with an example. Enter a short descriptive Account Name such as Bob & Carol in this case. Owner will be one person or joint if appropriate.

IndividualAccountInformation
 

Choose from the Type list (Taxable, IRA, Roth IRA, Inherited IRA, Annuity, 401K, 403B). Likewise choose from the Custodian list. Custodians for popular retail brokerages are available.  Sales commissions for custodians are used to estimate trading fees.  You can customize sales commissions and even define new custodians using the Fee Schedule.  One of the predefined custodians is "BalancingAct."  Use it if you are including an account that doesn't have trading fees or have assets that are not held in an account.

Trade policy is used to determine which tax lot to sell. The default setting is optimum, which will result in the lowest capital gain tax. You will have to trade specific tax lots when using this setting. Other settings include FIFO, LIFO, High Cost and Low Cost. FIFO is the IRS default. You can use other settings for special tax situations, such as accelerating capital gains by selling low cost lots first.

There is one other trade policy option -- "Do Not Trade." Use this when you want to "lock" an account from trading. The assets in the account are still included in overall portfolio imbalance calculation. You might use this if you have a 401K with trading restrictions, for example. Trades to rebalance the portfolio would be done from the unlocked accounts.

The final three entries (Deposit, Withdraw, Cash Reserve) are discussed in the Cash Manager. You can ignore this during initial setup. 


Tips & Tricks

Tax rates can be tricky, because of all those extra rules. You can just enter your tax bracket, but your actual marginal tax rate is more accurate. You can estimate  it using  TurboTax® or similar tax preparation software by generating a hypothetical return. Or ask your tax accountant to do something similar.

  1. Start with your most recent actual tax return
  2. Adjust your income (increase or decrease) to get the best estimate for your next tax return.
  3. Make a similar adjustment for capital gains
  4. Make other adjustments, such as deductions, to match what you expect for the next year.
  5. Run the software and make note of your estimated total tax with these adjustments
  6. Add fictitious ordinary income of $100
  7. Make note of your new total tax
    • Income Tax Rate = (new total tax) - (estimated total tax)
  8. Repeat steps 5 and 6, this time adding $100 fictitious capital gain
    • Capital Gains Tax Rate = (new total tax) - (estimated total tax)

For more precision, add $1,000 fictitious income and divide the result by 10.

You can do a similar exercise (adding fictitious income) for state income taxes. However, do so only if withdrawals from tax advantaged accounts will incur a state tax liability and likewise for capital gains.