1. BetterInvesting Portfolio Manager Improving Investment Tax Decisions
Created by: QUANT IX SOFTWARE, Inc.
This Microsoft PowerPoint presentation is one in a series of PowerPoint presentations designed to help you use BetterInvesting’s Portfolio Manager Software to improve your portfolio management decision making process.
Revised: October, 2006

2. Improving Investment Tax Decisions with BI Portfolio Manager
Topics : Importance of accurate records What determines cost basis What determines holding period Lot-by-lot accounting Tax reports Effective tax decisions
Effective portfolio management is multi-dimensional: investment selection, careful portfolio construction, and wise tax planning must all be considered to achieve better results. In this PowerPoint presentation, we’ll review the importance of accurate record keeping, what determines cost basis, and highlight important tax basis accounting tools. 2

3. Accurate record keeping is essential
IRS finds many taxpayers do not properly report their capital gains and losses
In 2001, 38% of taxpayer misreported capital gains and losses:
2/3rds under reported gains
1/3 over reported gains
Main reasons for errors:
lack of accurate record keeping
due to miscalculation of adjusted cost basis
* Based on 2001 Government Accountability Office report to Congress
Tax Planning within Portfolio Manager
Accurate record keeping is essential!
Portfolio Manager helps investors:
accurately track investment records for compliant IRS reporting – save time and money when filing your taxes.
properly track investment records so when selling all or partial positions, investors can properly report capital gains and losses.
as part of applying sales, users will have the flexibility to identify which securities lots to use when selling securities 3

4. Improving Investment Tax Decisions with BI Portfolio Manager
Topics : Importance of accurate records What determines cost basis What determines holding period Lot-by-lot accounting Tax reports Effective tax decisions
If you don’t know what you own, when you bought your investments, and what you paid for them it will be impossible to manage your portfolios effectively. 4

5. What determines a security’s cost basis?
Common determinants of cost basis:
Amount paid of each purchase of the security
Any dividends reinvested into the security
Any non-taxable distributions (i.e., return of capital)
Stock splits, spin-offs or mergers
Any sales
Any transfers
As the result of inheritance
Tax Planning within Portfolio Manager
Factors that affect cost basis...
Purchases
Partial sales
Reinvested dividends (drip plans)
Non taxable distributions
Other factors
Portfolio Manager will accurately track activity that affects cost basis for proper IRS reporting. 5

6. Cost basis example
What would the cost basis be of a security with the following history –
purchased on several different occasions
dividends reinvested
later split its stock
sold part of the stock position
And finally part of the security gifted to a charity?
Example of determinants of a security’s cost basis.... 6

7. BI Portfolio Manager handles this with ease…
This transaction history shows activity that commonly affects cost basis:
Notice:
Purchase
Stock splits
Reinvested income
Partial sales
Transfer of shares.... 7

8. BI Portfolio manager handles this with ease…
Shown here is the Security Basis report. A useful tax-planning tool, organizing securities according to type and listing each security by purchase lot. Note: * on the report indicates reinvestment transactions.
The information contained on the Security Basis Report includes:
·Type: the designated asset type for the security, such as common stock, mutual fund, etc.
·Security: the name or description of the asset.
·Acquisition Date: the purchase date of the security transaction lot.
·Quantity: the total quantity purchased of the security transaction lot.
·Unit Cost: the unit cost paid for the security transaction lot.
·Total Cost: the total cost paid for the security transaction lot.
·Market Price: the market price of the security.
·Market Value: the market value for the security transaction lot.
·Unrealized Gain/Loss: the total unrealized gain or loss for the security transaction lot.
·% Gain/Loss: the total percentage unrealized gain or loss for the security transaction lot.
·Annl. % Gain/Loss: the annualized percent unrealized gain or loss for the security transaction lot.
·Years Held: the number of years held since the purchase date for the security transaction lot.
·% of Portfolio: the percentage the security lot (and total security) market value represents of the total portfolio value.
·The Total line per security shows the total quantity of all lots, average cost paid, total cost basis, total market value, total unrealized gain/loss, percent gain/loss, average years held, and total percent portfolio.
dollar cost averaging 8

9. Improving Investment Tax Decisions with BI Portfolio Manager
Topics : Importance of accurate records What determines cost basis What determines holding period Lot-by-lot accounting Tax reports Effective tax decisions
What determines holding period.... 9

10. What determines a security’s holding period?
When a security is sold, the taxpayer must identify the holding period for the property.
Holding period is the amount of time that the security was owned by the investor, beginning on the day after the property was acquired and including the day the property was disposed of by the taxpayer.
Holding periods of one year or less are considered short-term.
Holding periods of more than one year are considered long-term.
Tax Planning within Portfolio Manager
Factors that affect holding period... 10

11. What determines a security’s holding period?
Why is knowing the holding period so important to investors?
Capital gains tax rates are lower for long-term gains than they are for short-term gains:
The current Federal LTCG rate is usually 15%.
STCG are taxed at regular income - Federal income tax rates (vary between 10% to 35%).
The goal is to defer the capital gain tax as long as possible, so the money can continue to grow.
Tax Planning within Portfolio Manager
Why understanding holding period is important...
Lower tax rates for short term v. long term holding periods... 11

12. Improving Investment Tax Decisions with BI Portfolio Manager
Topics : Importance of accurate records What determines cost basis What determines holding period Lot-by-lot accounting Tax reports Effective tax decisions 12

13. What is meant by lot-by-lot accounting and why does this type of record keeping matter?
One of the many benefits of an accurate and up-to-date record keeping system is the ability to access the raw data in an useable format.
This is particularly important when considering the tax consequences of your investment decisions.
Portfolio Manager helps by providing:
Lot-by-lot assignment when making partial sales -
FIFO (First In, First Out)
Specific ID,
Average Cost Methods for mutual funds – both single and double category methods
Minimum or Maximum gain
Tax Planning within Portfolio Manager
Lot by Lot record keeping maintains each purchase and reinvestment as a separate transaction, each with specific basis date, cost, etc.
Lot-by-lot accounting is important for balancing partial sales w/ tax considerations..
FIFO (First In, First Out)
Specific ID,
Average Cost Methods for mutual funds – both single and double category methods
Minimum or Maximum gain 13

14. Making effective tax decisions with Portfolio Manager
Definitions:
Lot-by-lot accounting: One of the more useful features provided by BetterInvesting Portfolio Manager is the ability to track each purchase record (i.e., specific transaction lot) separately. Each lot’s purchase date, quantity, cost, etc. are all tracked as individual records in Portfolio Manager. This provides you with a very useful tax advantage when applying sales.
Tax Planning within Portfolio Manager
Lot by Lot accounting.... 14

15. Example of lot-by-lot accounting...
This Basis Report shows the lot by lot accounting for each purchase and reinvestment transaction for Harley Davidson... 15

16. Making effective tax decisions with Portfolio Manager
Definitions – methods of sale application:
FIFO (First In, First Out): when shares were acquired at different times or different prices, BI Portfolio Manager allows you to identify the basis of the shares you acquired first as the basis of the shares sold first. When a sale transaction uses the First-In First-Out method, the program automatically reduces the current holding starting with the oldest lot held, then the next oldest, and so on, until the sale is totally applied. This method usually results in a higher capital gain since the oldest lots often have the lowest cost.
Tax Planning within Portfolio Manager
Lot-by-lot accounting is important for balancing partial sales w/ tax considerations..
FIFO (First In, First Out) 16

17. First In First Out lot selection in partial sales can result in higher taxes than otherwise realized if records are not organized...
Multiple lots listed for easy review and application. These can be sorted by holding period and/or unit cost.
Tax Planning
After deciding on which lots to use in the sale, Portfolio Manager makes the implementation of your decision easy and accurate…
First-In First-Out: when you choose to apply a sale transaction using the first-in first-out method, security lots are automatically sorted and reduced by holding period, starting with the oldest lot held, then the next oldest, and so on, until the sale is totally applied.
Note: based on current IRS rules, you must notify your executing broker of which security lots are used if you elect a method other than FIFO application. 17

18. Making effective tax decisions with Portfolio Manager
Definitions – methods of sale application:
Specific ID: when shares were acquired at different times or prices, BI Portfolio Manager allows specific identification of which shares were sold based, on acquisition date and cost basis. The Specific Identification Method allows the greatest flexibility when managing capital gains and losses.
Tax Planning within Portfolio Manager
Lot by Lot record keeping maintains each purchase and reinvestment as a separate transaction, each with specific basis date, cost, etc.
Lot-by-lot accounting is important for balancing partial sales w/ tax considerations..
Specific ID 18

19. Specific ID lot selection in partial sales can allow the user to manually select which lots are sold for specific purposes...
Multiple lots listed for easy review and application. These can be sorted by holding period and/or unit cost.
Tax Planning
After deciding on which lots to use in the sale, Portfolio Manager makes the implementation of your decision easy and accurate…
On the sale screen, you can select to use one of the following application methods:
Specific Identification: when you choose to apply a sale transaction using the specific identification method, you have the flexibility of applying the sale to specific asset lots held in order to maximize or minimize any associated gains or losses for tax purposes.
Note: based on current IRS rules, you must notify your executing broker of which security lots are used if you elect a method other than FIFO application. 19

20. Making effective tax decisions with Portfolio Manager
Definitions – methods of sale application:
Minimum or Maximum gain - When minimum gain selection is chosen, BIPM automatically allocates the sale to result in the lowest realized capital gain considering the lots held. Alternatively, when maximum gain is selected, BIPM will apply the sale to result in the maximum realized gain. This flexibility helps you make better tax decisions when considering past realized gains or losses – i.e. to offset prior activity.
Tax Planning within Portfolio Manager
Lot by Lot record keeping maintains each purchase and reinvestment as a separate transaction, each with specific basis date, cost, etc.
Lot-by-lot accounting is important for balancing partial sales w/ tax considerations..
Minimum or Maximum gain 20

21. Automatic Minimum Gain lot selection in partial sales can help to balance gains/losses with previous sale activity...
Multiple lots listed for easy review and application. These can be sorted by holding period and/or unit cost.
Tax Planning
After deciding on which lots to use in the sale, Portfolio Manager makes the implementation of your decision easy and accurate…
On the sale screen, you can select to use one of the following application methods:
Minimum Gain: use this choice to automatically sort holdings and allocate the sold quantity to result in the minimum dollar gain realized.
Maximum Gain: use this choice to automatically sort holdings and allocate the sold quantity to result in the maximum dollar gain realized.
Note: based on current IRS rules, you must notify your executing broker of which security lots are used if you elect a method other than FIFO application. 21

22. Automatic Maximum Gain lot selection in partial sales can help to balance gains/losses with previous sale activity...
Multiple lots listed for easy review and application. These can be sorted by holding period and/or unit cost.
Tax Planning
After deciding on which lots to use in the sale, Portfolio Manager makes the implementation of your decision easy and accurate…
On the sale screen, you can select to use one of the following application methods:
Maximum Gain: use this choice to automatically sort holdings and allocate the sold quantity to result in the maximum dollar gain realized.
Note: based on current IRS rules, you must notify your executing broker of which security lots are used if you elect a method other than FIFO application. 22

23. Making effective tax decisions with Portfolio Manager
Definitions – methods of sale application:
Mutual Fund Average Cost Method - A holder of mutual fund shares may choose to use an average basis to determine the gain or loss when all or part of the shares held have been sold, provided the shares were acquired at various times and prices. The average basis is determined by using either the single-category method or the double-category method.
Tax Planning within Portfolio Manager
Lot by Lot record keeping maintains each purchase and reinvestment as a separate transaction, each with specific basis date, cost, etc.
Lot-by-lot accounting is important for balancing partial sales w/ tax considerations..
Average Cost Methods for mutual funds – both single and double category methods 23

24. Lot selection in partial sales of mutual funds can be applied on either single or double category to determine gains/losses...
Multiple lots listed for easy review and application. These can be sorted by holding period and/or unit cost.
Tax Planning
After deciding on which lots to use in the sale, Portfolio Manager makes the implementation of your decision easy and accurate…
On the sale screen, you can select to use one of the following application methods:
Average Cost: in the sale application of mutual funds, Portfolio Manager enables you to choose between the unit cost paid, or the average cost paid, to determine the capital gain or loss realized. Either the single-category average basis, or double-category average basis can be selected.
Note: based on current IRS rules, you must notify your executing broker of which security lots are used if you elect a method other than FIFO application. 24

25. Improving Investment Tax Decisions with BI Portfolio Manager
Topics : Importance of accurate records What determines cost basis What determines holding period Lot-by-lot accounting Tax reports Effective tax decisions 25

26. Tax Planning Reports
Income Received: The Income Received Report tracks the investment income and capital gain distributions received by securities in your portfolio. Users can customize the information listed on this for reporting period, portfolios to include, asset types to include, and filtering activity by portfolio or individual asset. The report segregates securities according to type, and provides totals based on the range selected for the report. 26

27. All the information you
Ideal for tax filing!
All the information you
(or your CPA) needs.
Income Received report... 27

28. Tax Planning Reports
Sold Securities: The Sold Securities Report compiles important information regarding the sales of securities for a given portfolio. Users can customize the information listed on this report for reporting period, portfolios to include, asset types to include, and filtering activity by portfolio or individual asset. Sales activity is separated based on Short Term Activity or Long Term Activity. 28

29. All the information you
Ideal for tax filing!
All the information you
(or your CPA) needs.
Sold Securities Report... 29

30. Portfolio Manager provides several other reports to help investors better manage taxes for their portfolios...
Other tax reports include:
Capital Gains Distributions
Qualified Dividends
Short-Term to Long-Term Holding Period
Wash Sale Check List
Tax Planning and Portfolio Manager
We have already seen the usefulness of the Security Basis and Sold Securities Reports for making informed tax decisions when managing your portfolio.
Portfolio Manager also provides the following tax decision making reports:
Capital Gains Distributions Report: summarizes the gain distributions received by securities in your portfolio
Qualified Dividends Report: identifies which taxable dividends received are qualified or non-qualified, as required by the new 2003 tax law changes.
Short-Term to Long-Term Holding Period Report: summarizes those security lots within a portfolio that are about to become long-term as defined by IRC tax rules (greater than 1 year holding period).
Wash Sale Check List Report: tabulates sold securities with a realized capital loss, and identifies when the IRS Wash Sale period expires (30 days after the sale date). 30

31. Improving Investment Tax Decisions with BI Portfolio Manager
Topics : Importance of accurate records What determines cost basis What determines holding period Lot-by-lot accounting Tax reports Effective tax decisions
Effective portfolio management is multi-dimensional: investment selection, careful portfolio construction, and wise tax planning must all be considered to achieve better results. BetterInvesting’s Portfolio Manager includes the tools necessary to help you make these important decisions including:
Managing multiple portfolios
Entering global transactions
How to use PRK’s fundamental analysis tools
Use the power of Internet research
Asset allocation and diversification
How to create security watch lists
How to make tax effective decisions
Other features 31

32. Putting it all together for more effective tax decisions
Organized accurate record keeping:
allows you to effectively manage the tax implications of your investment decisions;
with lot-by-lot purchase detail, investors can not take advantage of several IRS approved methods to reduce capital gain taxes.
weeding and feeding your investment portfolio for long term successful results! 32

33. Putting it all together for more effective tax decisions
Additional Tax Management Tools: Taxable vs. Tax deferred Accounts
Since BIPM provides for multiple portfolio management, it’s the ideal tool for segregating your various accounts, while still allowing for the combination of any or all of your portfolios on the various reports. This is particularly useful when managing your portfolios to hold investments in the most tax preferred account.
For instance, it may be wise to hold stocks providing qualified dividends (i.e. qualified dividends are currently taxed at a 15% tax rate) in your currently taxable account, while holding stocks that do not provide qualified dividends (many Real Estate Investment Trusts) inside your tax deferred retirement accounts. 33

34. Putting it all together for more effective tax decisions
Additional Tax Management Tools: Optimize gift and estate planning strategies
BIPM’s lot-by-lot cost basis accounting provides an essential element for optimizing gift and estate planning strategies. For instance, you may determine that you wish to donate a security to a charity. Since investors often have multiple purchase lots of the same security, it would be quite advantageous to donate those purchases with the lowest cost. Without detailed purchase records, this would be impossible to do. 34

35. Putting it all together for more effective tax decisions
Optimize gift and estate planning strategies
When gifting to a qualified charity, your gift value is usually based on the market value at the time of the gift including the unrealized capital gain, and not the cost of the gift. In other words, you will be giving away a larger capital gain that otherwise would have been taxed if you sold the securities and then gifted the proceeds.
BetterInvesting Portfolio Manager provides the tools you need for improved investment decision making, leading you to better investing results! 35

36. Improving Investment Tax Decisions using BI Portfolio Manager
BetterInvesting Portfolio Manager will lead you to better portfolio management decisions. Please visit these web sites to find out more about the software, and to try a free demo version: (developer’s site) Thank you for your interest in Portfolio Manager!
Thank you for taking the time to review this PowerPoint® Presentation.
If you have questions regarding Portfolio Manager, please –
Visit BetterInvesting’s web
Visit the developer’s web
Call
Call QUANT IX
A free demo is available for
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End of PowerPoint Presentation demonstrating several of Portfolio Manager’s important portfolio management and investment decision making tools. 36