Know The Tax Consequences So You Aren’t Surprised!

It’s been very fashionable (or timely, depending on your investment philosophy) to be in Alternatives these last couple of years.

Alternatives consist of a wide type of assets.  They can be anything from a commodity ETF like GLD to Futures and Options to Master Limited Partnership to directly held Real Estate and much more.

It’s super important to know what the tax consequences are for any holding you may have that is beyond a Stock or Bond holding.

Why? Because you want to have a full view of the cost of an asset, and for most, it goes beyond just what it cost to buy said asset.

For example, many people assume long term and/or short term capital gains treatment would extend to any asset class.

Not True!

If you hold collectibles or precious metals, the tax rate is 28%.  That’s just the way it is for these asset classes.

If you buy into a Master Limited Partnership (or other type of partnership), you will have a whole slew of K-1s to consider at tax time, and likely this will incur higher tax preparations fees.

Same thing for directly held real estate: More paperwork and different tax treatment at income tax time, most significantly at sale time.

I’m not intending to discourage consideration of Alternative asset classes.

I am encouraging that you consider all your costs, which includes tax treatment, to enable better analysis of the suitability of an asset in your asset mix.

(Disclosure: I am a Fee-Only Financial Planner.  My website is here.)