Cost Basis of taxable brokerage accounts

  • When adding a taxable "brokerage" account to a client's Accounts in Advizr, you'll have the chance to input the account's current cost basis along with a turnover ratio and a capital gains ratio in the "Account Details" section:
  • Advizr takes the approach of taxing a portion of the brokerage account's market value year over year, to reflect the possibility of distributions from dividends, interest, capital gains inside funds, and any sales of investments inside the account. This portion is what we call the "Turnover Ratio". 
  • We then tax that portion of the account's market value at either long-term capital gains rates to reflect taxes on long-term gains or qualified dividends, or at ordinary income rates for short-term capital gains, non-qualified dividends, and taxable interest. The long-term capital gains rates will apply to the percentage of the turnover ratio specified in the "Capital Gains Ratio" field, while the remaining percent out of 100 will be taxed at ordinary income rates.
  • For example, if an account is worth $100,000 today, grows by 5% to $105,000 at the end of the year, and has a turnover ratio of 10% with a capital gains ratio of 50%, we will tax $5,250 at the client's long-term capital gains rate according to their tax bracket, and $5,250 at their marginal ordinary income tax rate for that year.