Investors face ‘larger tax bills’ from 2021 portfolio gains, strategist says

Despite the pandemic, 2021 was a banner year for investors. However, with every upside, there’s a downside — and for investors that means larger tax bills.

“2021 was a very unique year where all asset classes across the board did well ... people's portfolios were up,” Eric Beiley, executive managing director at Steward Partners Global Advisory, recently told Yahoo Finance Live (video above). “Their net worths were up, but what we're seeing is larger tax bills than we've seen in past years.”

Typically, to minimize the tax implications, investors should review their realized gains during the calendar year and look at their portfolio to see where they can offset it against losses, Beiley said, but before the calendar year ends.

If you had losses in 2021, you can write them off, but there’s a limit.

“Under current law, you can only write off $3,000 in losses — not a lot for people with sizable portfolios,” Beiley said.

But it's too late to make any tax moves now. This year's tax bill is for gains in the previous calendar year, so investors can’t reposition their portfolios today to offset losses or taxes for this tax bill.

Instead, investors may need to look to their portfolios to pay Uncle Sam.

"People have to write these tax checks," Beiley said. “In this more volatile market, ‘where am I going to get the cash to pay my tax bill,’ are harder discussions to have,”

Start with your most liquid assets that you own, Beiley recommended, such as stocks, bonds, and ETFs, which "are very easy assets to sell for cash." Then look to fixed income, he said.

“April historically can be bumpy in the markets because people are looking at their portfolios, where they might need to raise cash,” Beiley said. “Look at the most liquid assets and positions that have done well [and] take a little off of that position to rebalance and use that cash for your tax bill.”

Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda

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