Maxit Tax Manager is a third party service that helps you, the investor, easily manage the factors that determine the taxes you pay on your investments annually.
One of these factors is cost basis, which is a term used to describe both original cost and adjusted cost — two very different things. Original cost is what you originally paid for a position in your portfolio. Adjusted cost is the true cost of a position you hold. This is often more complicated than simply looking at the original price you paid for a stock in your portfolio. A number of things can happen which will impact the cost basis of that position, such as splits or mergers. These are known as corporate actions. Wash sales can also change your cost basis, as can selling only part of a larger position.
Maxit alleviates the need for you to worry about calculating for these events on your own by automatically adjusting for corporate action events, such as mergers, spin-offs and stock splits, and wash sales.
Another important element of the Maxit service is helping you manage the sale of positions. When you buy a position, you get a number of shares at a specific price on a specific date. When you buy that position more than once, you have different groups of shares, each identified individually as lots with differing quantities, prices and purchase dates.
Lot example
Symbol
Opened
Quantity
Price
ABC
01/22/2006
100
$19.45
ABC
02/15/2006
150
$23.18
ABC
03/05/2006
150
$30.15
Each of these purchases represents one lot. Though your broker displays this as one position of 400 shares, it actually consists of these individual purchases as far as the IRS is concerned.
Lots play an important role in managing your after-tax results. Since each lot has its own cost basis, it’s important to select the right ones when you are closing a position, so you achieve the best tax result for your particular situation. Maxit is designed to make this as simple as possible.
Please note that as a third party service, Ally Invest is not responsible for this information and does not guarantee its accuracy. Ally Invest does not provide tax advice.
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Maxit has a number of Tax Strategies which are very easy to set up. Setting a Tax Strategy determines which lots get sold when. This is a large part of what determines after-tax results. The reason that this plays such an important part in your tax outcomes is that the lot you select will ultimately determine your gains and losses. If you’ve had a good year and your investments are up in value, for example, you might want to reduce those gains by selecting lots which maximize your losses, thus reducing the taxes you would pay for the year. Maxit has Tax Strategy settings that automatically manage all of this for you. Learn more about Maxit
To change the tax lot for IRS reporting purposes, go to My Accounts > Account Records > Tax Lot Allocation: Cost Basis and make your elections from there. Changes must be submitted within 2 business days following execution of the trade and aren’t applicable for purchases made prior to 2011. For any purchases made prior to 2011, it will be at your discretion to report the cost basis for taxation purposes when filing.
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These 5 options are the settings that will help you manage your after tax portfolio performance.
First In First Out (FIFO): Selecting this option will result in those lots which you purchased first to be sold first.
Last In First Out (LIFO): Selecting this option will result in those lots which purchased last to be sold first.
Minimum Taxable Gains (MinTax): Selecting this option will allow the Maxit system to determine the best lot to sell to minimize your after tax gains, thus lowering your tax burden.
Maximize Taxable Gains (MaxGain): The MaxGain setting will sell lots first that would realize the largest taxable gain. This strategy should be used with care since its ultimate effect is to increase your tax burden.
Average Cost (Avg Cost): Average cost applies only to Mutual Fund investments. Using this method averages the total cost of your mutual fund position across all of your tax lots. Average cost can only be applied from the beginning of a year, and once it’s selected, you can’t change it without permission from the IRS or until you sell out that position entirely.
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Incomplete Positions on the Maxit Dashboard indicates which positions require additional purchase information, so Maxit can provide accurate gain/loss values for your portfolio.
Seed Positions: Stocks, Bonds, Funds or Options which you held at the brokerage prior to the activation of Maxit which require additional purchase information. You can check your old trade confirmations and statements for this information.
ACAT: Stocks, Bonds, Funds, or Options which you have transferred into the account which require additional purchase information. You can check your old trade confirmations and statements for this information.
Other Items: Stocks Bonds, Funds or Options which require additional purchase information but are not categorized as transfers or seed positions.
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Unrealized Gain/Loss is the value of the positions you have not sold or covered. Because you have not sold or covered these positions and locked in the gains and losses, this value will go and up down as the market value changes.
Realized Gain/Loss is the value of the positions you have sold or covered and thus you have locked in those gains or losses.
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Review the list of incomplete positions, and decide which one you’d like to start with. Select Edit.
Next, you’ll see Purchase Information. If you only have one lot, enter the information for each field
- Acquisition Date – The date you bought or received the position.
- QTY – The number of shares you purchased.
- Cost – Enter the total cost of the transaction.
If you have more than one lot, select Add Line to add a number of lines equal to the number of lots you purchased, and enter the required information.
Keep in mind, you can always edit this information. The positions you have completed are stored in the Completed Items table.
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This is a list of any transfers you’ve received into your account for which we don’t have the necessary purchase information.
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Completed Positions are those positions for which you’ve already provided purchase information.
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Maxit provides a number of tax strategies or lot relief methods from which to select: FIFO, LIFO, MinTax, MaxGain, and Average Cost. Average Cost can only be applied to mutual funds. As a result, when selecting Average Cost as your method, you need to specify that you are applying it to the Mutual Fund security type. The other methods can be applied against any type of security.
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Select Raw Trades to view a full list of all your purchases and sells. Choose the sell transaction to which you want to apply Versus Purchase and select Edit to view the details of the sell. Next, select Versus Purchase.
Keep in mind, if you know you want to apply a FIFO, LIFO, MinTax, or Max Gain to this particular sell, you can select these options. The versus purchase option, however, is available if you choose Next. You’ll see a list of lots you currently hold in that position. Enter the number of shares to be applied against the lots displayed, and select Save.
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Maxit Tax Manager imports and tracks trade data from the site, and is able to generate prepared Schedule D and 8949 forms to show a record of Gain and Loss for the year on both covered and non-covered securities according to the IRS reporting rules. Schedule D and 8949 documents are generally available for download by the first week of February for the previous tax year’s transactions. You can find your Schedule D and 8949 by logging in, selecting More and Statements and Tax Forms. You can always call us for help at 1-855-880-2559.
Maxit enables you to select tax purchase lots and view trade match-ups in the Raw Trades section, which update within a business day to be included in the Schedule D and 8949 forms generated by Maxit. That information can also be downloaded in a TXF file, which many electronic tax programs can upload. Your tax software’s customer support can assist you in determining how to import that file into their specific software. You can download a TXF file from the Tax Reports tab of Maxit.
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Maxit Tax Manager and Realized/Unrealized Gain & Loss are independent of the Tax Lot Allocation tool. Any changes you make using the Tax Lot Allocation tool will not automatically update within the Maxit Tax Manager tool or on Realized/Unrealized Gain & Loss. Once you update Maxit Tax Manager, Ally Invest’s Gain & Loss pages will typically update overnight.
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