To support their growing independent advisor business and to streamline advisor workflow, Scottrade has selected Scivantage Professional to power their Advisor Services’ next-generation, advisor desktop platform. Scivantage Professional provides Scottrade Advisors with an integrated suite of applications that support their unique workflow—from opening/maintaining brokerage accounts and executing complex trade orders to proactive management of client portfolios from a single, browser-based interface.  Scottrade Advisors will also have access to Scivantage Maxit, the most complete cost basis, tax management and portfolio reporting solution, to enable timely and effortless investment tax decisions. 

To learn more about Scottrade’s selection and what it means for Scivantage, read the latest press release.

Adnane Charchour, President and CEO of Scivantage was selected by an independent panel of judges to receive the Ernst & Young Entrepreneur Of The Year® 2008 Award for New Jersey.  The award was presented at a gala event at the Marriott Teaneck at Glenpointe on Thursday, June 19, 2008.

Congratulations to Adnane on this tremendous accomplishment.  Next up, the national event in November.  Read more

On Thursday the Senate Finance and the House Ways and Means committees agreed to use government income from basis reporting as the major offset for increased farm bill spending. This certainly isn’t a done deal, but with the House and Senate seemingly on the same page it now looks like basis reporting may have found a home.

The 2002 farm bill was set to expire last Friday. After President Bush originally said he’d favor a one-year extension if the bill was worked out before Friday, he ultimately signed a one-week extension. Both the House and Senate will continue to work on details of the bill this week, although the NationalJournal reports House Agriculture Chairman Collin Peterson has already hinted that he’ll ask for another extension through May 9.

The House Ways and Means Committee has teed up the Housing Assistance Tax Bill of 2008. The bill, offered by Chairman Charles B. Rangel (D-NY), provides tax credits and deductions, home-buyer assistance programs and other provisions all designed to aid the housing markets. As expected, the bill includes a Basis Reporting offset to pay for the measures.

Over in the Senate, they have their own housing bill which takes aim at foreclosures. The Foreclosure Prevention Bill of 2008 (HR 3221) does not include a Basis Reporting offset.

President Bush isn’t real keen on the Senate’s bill (among other reasons, he wants the effect of the first stimulus to take effect before considering additional measures). No White House comment yet on the House bill.

Join us for an in-depth review of Financial Guidance, Scivantage’s newest suite of financial analysis and planning tools designed to support the ever-changing requirements of financial advisors, as well as centralized planning departments.   

Register today for this free, live webinar to take a closer look at how the Financial Guidance solutions can enhance your existing financial planning strategies throughout each stage of the advisory process and help your firm build stronger, more profitable relationships.   The webinar is scheduled for Thursday, April 10th @ 4:15 PM EST.  For more information or to register for this webinar, please visit here.

Quick update: Not a lot to report on pending Basis Reporting legislation. Insiders say it’s not a question of “if”, but rather “when” and, maybe more curious, “which”. The consensus is that the legislation will pass some time in 2008, but it’s anyone’s guess to which bill will include it. As an extender, Basis Reporting is very attractive to legislators who would like to use the anticipated increase in tax revenues to offset spending elsewhere. It could end up being part of a Farm, Military or -the handicappers favorite- Housing bill.

 Despite Congress’ inability to include a basis reporting provision in any tax legislation last year, President Bush included this proposal in his budget (for the second year in a row).  Most financial service professionals are familiar with the pending cost basis reporting legislation (also known as the START Act, H.R. 878 or S. 601). The bill would require brokerages and fund companies to provide both investors and the IRS with the cost basis of securities sold. While this is a long overdue panacea for investors’ record keeping headaches, the proposal actually stems from an academic paper by professors Jay Soled and Joseph Dodge that estimated the amount of revenue lost from inaccurate or missing basis information could approach $250 billion dollars over ten years.  By contrast, the I.R.S. estimated that the amount of the “tax gap” that is attributable to capital gains was $11 billion in 2001.  A reasonable extrapolation would suggest that this amount has grown to $17 billion in 2007.    Originally sponsored by Senator Evan Bayh (D-IN) in 2006 as the “START Act”, the Basis Reporting legislation was reintroduced in 2007 by Senator Bayh in the Senate and Representative Rahm Emanuel (D-IL) in the House.  Last summer, the Senate Finance Committee released a “discussion draft” that was its first public statement of where it stands on the proposal.  And even more significant action was taken in the House of Representatives where a proposal to require basis reporting was included in legislation as a way to pay for the revenue costs associated with an AMT “patch” and new energy tax incentives.  In both cases, the basis provision was not included in the final legislation, although the reason had little to do with the bill itself. In the AMT Gap, Basis Reporting became a casualty of the Republicans refusal to include any provisions that raise revenue as part of a fix to the AMT.  It was dropped from the Energy bill when the Senate fell one vote short of the sixty votes necessary to pass the energy tax component of the overall legislation. 

So what happens to the Basis Reporting bill now? The consensus is that it is only a matter of time until this becomes law.  Under Paygo rules, the bill is a top candidate for being included as a revenue offset in any tax legislation that is enacted this year, such as another patch to the AMT or a tax extenders bill.  If past AMT and Extenders votes are any indication, basis reporting may not pass until year-end. On the other hand, there’s no way to know how election year politics might come into play, as there could be another stimulus bill that includes tax provisions that might need revenue offsets like the basis reporting provision.

What should financial service firms do regarding cost basis at this point? Many firms aren’t waiting for legislation to move forward with cost basis reporting. Recognizing that the record keeping challenges surrounding cost basis detract from the overall investing experience, leading firms are taking the initiative to solve the problem now. And the very best firms aren’t stopping with the anticipated minimum requirements of the legislation; they’re working with vendors like Scivantage to expand coverage beyond equities and mutual funds, to include options and fixed income, and they’re providing wash sales coverage (courtesy of Maxit) which will not be part of any Basis Reporting bill, but will continue to be the responsibility of tax filers.

All this industry talk about cost basis and Basis Reporting legislation, and it takes a market correction (or maybe worse) to emphasize perhaps the most important reason for financial firms to provide cost basis: tax management. Or, for those who break out in hives at the mere mention of “tax”, think of it as an opportunity to increase after-tax performance.Investors who have real-time access to their adjusted cost basis have numerous ways to manage their taxes. “Tax loss harvesting” is probably the best know tactic. Tax loss harvesting is simply selling losing lots to realize those losses, reduce capital gains liabilities and effectively increase after-tax performance. But this is hardly the only opportunity afforded to those who know the cost basis of their holdings. They can also take advantage of the lower long-term capital gains tax rate, defer payments on gains and avoid wash sales. Too complicated for the average investor? Techniques best reserved for tax professionals? The answer is no on both counts. All it requires is access to a real-time, adjusted cost basis solution and the appropriate tax management tools (both pieces are provided in Scivantage Maxit).

What does all of this have to do with the recent market woes? Here are two examples of how real-time cost basis can lead to improved after-tax performance:

• 1) Let’s say an investor bought 500 shares of Citigroup (C) last spring when it was trading at $50. By December Citi had sunk below $30. If the investor were already considering exiting the position, doing so before the last trading day in December, rather than after the first trading day in January, would have been beneficial. The investor could have realized the $10,000 loss (approximating the fill price and commissions) which could be used to offset 2007 gains, potentially leading to $3,500 in tax savings (assumes 35% tax bracket). Waiting until January to sell postpones the savings for a full year, giving the IRS, and not the investor, the investment power of the $3,500.
• 2) Another investor bought Home Depot (HD) at $41 in late January 2007. That tax lot will be going long-term shortly. If the investor were planning to sell the position, with the stock now trading closer to $26, they should do it before the one year anniversary of the original purchase. Why? Because as a short-term loss it can be used to offset short-term gains, which would be taxed as high as 35%. If the position is held for more than 365 days and then sold, the loss would offset long-term gains, which are only taxed at 15%. Let’s say the loss were $15,000. The difference in after-tax impact between selling the security short- and long-term could be as high as $3,000! (the difference between 15% and 35% applied to $15,000).

Bear, bull or sideways market - the benefits of proper tax management can be gained in any market.  Providing tools to help investors and advisors manage the tax implications of their portfolio(s) can help improve performance regardless of market conditions.

Only the geekiest of financial service professionals noticed the recent IRS revenue ruling, 2008-5, on wash sales. But those who did see the note (and bothered to read it) the significance is noteworthy on many levels. As the IRS seems to pride itself on vague wording in wash sales rulings (”substantially identical” anyone?) the clarity of this ruling signals just how serious the IRS is about this issue. It also confirms that trading into a wash sale in an IRA account can be one of the costliest mistakes an investor can make.

Here’s why:

Normally a wash sale occurs by selling a security for a loss in a taxable account and then repurchasing the same security within 30 days, before or after the sale, in the same account (to keep this relatively simple, we’ll forget about “substantially identical” for now). A wash sale can also occur by having the same combination of transactions across multiple taxable accounts with the same tax payer ID (couples filing jointly, take notice). Under these circumstances wash sales are to be avoided because it means losses are deferred, along with the tax benefits of those losses. However, when the investor eventually sells the repurchased lot(s) the losses will be recovered.

If, on the other hand, an investor trades into a wash sale in their IRA the losses are lost forever. How significant would that be? Very. Let’s say an investor in the 35% tax bracket sells a security in their taxable account for a $20,000 loss and then purchases the same security in their IRA within 30 days. They’ve just lost that $20,000 loss for ever. That’s $7,000 in tax dollars!