NEW YORK, NY – Investors should fine-tune the timing of their financial transactions in anticipation of the 2004 presidential election and higher taxes in 2005, according to the cover story in the September issue of Worth magazine. 

“If we believe the next administration will seek to staunch the flow of governmental red ink by raising taxes, we need to know how to best position our investment portfolios and family businesses,” explained Editor-in-Chief Dwight Cass. “In most cases it should affect the timing of our financial decisions, but not the substance.”

Accordingly, the Worth article advises against making important financial decisions solely because of their tax consequences.  The type of transactions that do make good financial sense -- because they accelerate a transaction already being considered – might include exercising options to diversify assets, reallocating a securities portfolio because of rising interest rates or moving forward the close date on the sale of a business.

·        Securities
Now is a good time to reallocate assets to benefit from the low capital gains tax rate on the assets we sell.  If the income tax rate rises, investors may want to consider reallocating portfolios from taxable into tax-exempt debt.

·        Family Businesses
For businesses that will benefit from the recovering economy it makes sense to wait to sell.  Chances are the value of the business my go up far more than what will pay in additional capital gains tax.

·        Concentrated Stock Positions
How quickly things can change.  Up until recently financial advisors were recommending that clients hedge some part of their positions.  But with higher taxes on the horizon most suggest selling their position, or selling at least part of them through some type of disciplined program.

·        Real Estate
Those investors with significant concentrations of wealth in real estate, who want to diversify into other asset classes, may want to act now to avoid the risk of higher capital gains taxes.

·        Options and Compensation
For those individuals with money in the form of vested, in-the-money stock options it makes sense to exercise these options sooner rather than later.  It also makes sense to accelerate the receipt of income.  A year-end bonus paid in December rather than January will likely yield greater take home pay.

·        Charitable Contributions
It makes sense to delay contributions to a time when tax rates may be higher.  A charitable contribution in a world of 35 percent marginal tax rates is less valuable than a charitable contribution next year, or the year after, if tax rates were to rise to 40 or 50 percent.

Worth also predicts a resurgence of some investment strategies that have been less popular in recent years. The list comprises:

·        Monetization Strategies are designed to hedge market risk while delaying a sale.

·        Tax-Aware Investment Vehicles that actively harvest gains against losses may become more popular if tax rates rise.

·        Leveraged Investments in which the loan’s interest in deductible will have more appeal

·        Charitable Remainder Trusts into which investors my put appreciated securities and then sell them without incurring tax may be more attractive.

·        Ordinary Income to Capital Gain Conversion transforms income into lower taxed gains.

A monthly wealth management publication for the nation’s most affluent households, Worth premiered in December 2003 as a comprehensive resource for individuals and families with an average net worth of at least $5 million and a minimum average annual household income of $1 million.  Combining the financial acumen of Worth with the luxury lifestyle expertise of 28-year-old Robb Report, Worth covers the philanthropic, family finance, business and lifestyle issues confronting individuals whose focus has shifted from obtaining wealth to the challenges of managing it.

CurtCo Media
CurtCo Media is operated by CurtCo Media Labs, which for more than two decades has built highly successful publishing companies.  CurtCo has launched or acquired 28 magazines during this period.   In association with Weston Presidio and TD Capital Communications Partners,  CurtCo  operates Robb Report, The Robb Report Collection, Robb Report Home Entertainment, Worth, Robb Report MotorCycling and CurtCo’s Digital TV.  The company maintains offices in Malibu, New York City and Boston.

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Jeff Perlman
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jeffp@curtco.com