SHEARWATER CAPITAL

We specialize in strategies that help physicians keep more of what they earn by minimizing unnecessary taxes. By carefully structuring your portfolio, we can reduce your current tax liability while strengthening long-term after-tax growth.

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Our Approach to Tax-Smart Investing

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• Tax-Loss Harvesting: Selling investments at a loss can actually work to your advantage. Realized losses can be used to offset realized gains, thereby lowering your tax bill. If you don’t have realized gains to offset, harvested losses can be carried forward to use in future years. To keep your portfolio properly allocated, we can purchase similar, although not identical, securities ensuring your asset allocation remains on target while staying compliant with IRS wash-sale rules.

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• Strategic Location of Assets: Placing your assets in the accounts where they are most tax-efficient can reduce your annual tax burden. For example, government and corporate bonds that generate taxable interest are best held in tax-deferred retirement accounts, while municipal bonds belong in taxable accounts where their interest may be tax-free. Similarly, real estate investment trusts (REITs), which produce high taxable dividends, should be held in tax-advantaged accounts. This strategic approach helps to minimize taxes without changing your overall investment strategy.

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• Roth Optimization: Qualified withdrawals from Roth accounts are entirely tax-free. This makes them an ideal place to hold investments with the greatest potential for long-term growth. By placing assets with higher expected long-term returns, such as stocks, in your Roth accounts, you can maximize the benefit of tax-free growth over time. At the same time, it is important to keep your overall portfolio aligned with your target asset allocation. To achieve this, we can add more conservative investments, such as bonds, to your traditional tax-deferred and taxable accounts. This approach positions your Roth assets as a powerful engine for building long-term, tax-free wealth in retirement, while ensuring  that your total portfolio maintains the desired mix of risk and return.

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• HIFO Accounting: When undertaking a partial sale of an investment, HIFO accounting (highest in, first out) involves selling shares purchased at the highest price first. This minimizes the realized gain from a profitable sale and maximizes the realized loss from an unprofitable sale. When selling securities that have increased in value, HIFO accounting effectively defers a portion of the capital gains tax liability to a future date, thereby reducing its present value.

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Why It Matters

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You’ve worked hard to build your wealth. Without careful tax planning, a significant portion of your investment growth could be lost to the IRS. We help physicians take a disciplined, tax-smart approach, so more of your money is available to you and your family.