Tax Planning

Remark: Funding planning and tax planning go hand in hand | enterprise

Do your CPA and your financial advisor have a good working relationship? Most of the time, they will agree on many points that affect your financial situation. But this is the time of year when I get questions from CPAs about why someone sold something for a profit and thus created a tax burden.

This is an important lesson for investors: there are times when your taxes are kept as low as possible and making smart investment decisions can involve compromises. Keeping your taxes low isn’t always the best thing for your investment.

Most investors focus on returns, but a good financial advisor will always be aware of the amount of risk that is being taken with a portfolio. With every successful portfolio, there will be individual investments that will do significantly better than others. Sometimes selling part of it can lead to capital gains taxes, and sometimes it’s best for your overall portfolio.

From a psychological point of view, it can be difficult to sell something that is doing well. It gets even more difficult when it comes to taxes. However, if you get to the point where you’ve invested a significant portion of your wealth in just one stock, it can put your financial situation at serious risk.

Everyone’s situation is different, but for the purposes of this article having more than 20% of your assets tied to an investment can pose a significant risk.

When I come across someone who has a significant position in a security, I usually ask the following questions: If that stock tripled in value, would it change your life?

Usually the answer is no. I then ask, if this stock lost 75% of its value, would it change your life?

Usually the answer to this question is yes. In these situations, you need to make sure that tax avoidance is not your only consideration.

Just as it is important to make investment decisions while looking at your entire portfolio, it is also wise to consider your overall financial situation when making any changes to your portfolio. An increased tax burden can be the right solution to increasing risk on your investments.

If you are a successful investor, you will very likely come across this scenario at some point in your life. You need a tax advisor who understands this and financial advisor who can show you when you are better off with the tax bill than without.

David Jackson is the managing partner of Southern Springs Capital Group at 2555 Meridian Blvd. in Franklin. For more information, please call 615-905-4819 or visit

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