Hi Everyone,

Another tax season is behind us and I won’t be shy when it comes to reminding you that we should not wait until April of next year to deal with important issues. Our tax code is complicated. We could do more in the summer.


FIFO and a Frustrating Code
Our Economy Today

Investors in traditional mutual funds now have a choice on how their cost basis is calculated. Most will choose between FIFO (first in, first out) and an average cost basis. Clients in my fee-based asset management program with LPL Financial are likely using the FIFO method.

If you own traditional mutual funds in a taxable account, we should spend some time discussing this issue. The next few months are a great time to do it. Please don’t wait until tax season or the end of the year.

Headline news this weekend was full of commentary on the proposed Buffet method of paying taxes and the frustrating complexity of our present code. It’s amazing how such a complicated system is used in a fairly basic manner. Greg Ip summed it up well:

“The federal government is a gigantic player in the economy and it will get bigger in coming years as government services expand, the population ages, and interest on the national debt mounts.

Federal spending comes in three varieties:

1. Interest on the debt.
2. Discretionary spending.
3. Mandatory spending.

Tax revenue comes mainly from personal and corporate income and payroll taxes. Compared to other countries, the United States relies relatively little on consumption taxes such as gasoline or a value-added tax.

Every year the president proposes a budget; Congress accepts some of it but ignores a lot as it passes the appropriations, tax, and mandatory program laws.

Unlike the federal government, states must balance their budgets each year, which makes for profligacy in good times and wrenching austerity in bad times.”

Until next week,
Susan R. Linkous

Investing in mutual funds involves risk, including possible loss of principal. None of the above is intended to be specific tax advice. Please consult your tax professional to determine which cost basis calculation may be most appropriate for you.

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