The Truth about Tax Implications for Individual Investors

Erica Arroyo
May 18, 2022
Written by

If you’re self-motivated, and you know a little about finance, you might find managing some of your own investments to be an exciting challenge. Whether you’re seeing the returns you projected or not, it’s important to keep tax implications in mind as you map out your investment strategy and make financial decisions. You may have some questions about why they’re so important. 

Let’s take a look and some frequently asked questions from individual investors.

“Why do I need to understand the tax implications of my investments?”

Taxes certainly can be complex, especially with how frequently federal and local tax laws change on a year to year basis. Most people think about investment returns, but not many people think about the end of the year burden that goes along with capturing those returns. Without taking taxes into consideration, you could be left footing a large bill that you didn’t expect. 

“What do I need to think about when it comes to RSUs and ESPPs?”

Some individuals, especially in an industry like technology, may be offered restricted stock units (RSUs) and Employee Stock Purchase Plans (ESPPs) as part of their compensation packages. Does this sound like you? For these types of stocks, you need to think through the returns and the taxes owed on gains. An exciting, high return June can quickly become a major problem the following March around tax time.

Considering RSUs specifically, different vesting schedules allow for employees to own shares of a stock in different “lots.” Each lot has a different cost basis, and they own them at different points in the valuation of the stock. When it comes to taxes, it’s important to know which lot is most beneficial to sell from, whether you are planning to sell the stocks outright or convert into more diversified investments. Based on your specific tax situation, certain tax lots for certain positions are more beneficial to sell from first.

“Maybe I do need some help. Can I get assistance without handing over full control?”

Consider reaching out to an Advisor to see how you can look at your tax strategies in a more comprehensive way. Financial Advisors can partner directly with your CPA, collaborating to build a personalized plan that manages and minimizes tax liability.

When making a change to the taxable portfolio, wealth professionals do all they can to optimize allocations while managing the tax burden. This is a great way to ensure you are evaluating taxes and not surprised by the amount you may have to pay.

If you’re interested in kicking off a conversation with us, so you can stay on top of the tricky tax implications that come your way, give us a call—we’d love to hear from you.

Are you a tech professional? Take our quiz to find out if now is the time to start working with a financial advisor.

Topics: insights, investment management, tech professionals

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