Tax Optimizer

Investment tax accounting, tax analysis and planning

Tax Optimizer uses portfolio transactions (buys, sells, covers, corporate actions, etc.) along with client specified tax elections to calculate the U.S. tax basis of each investment lot as well as the tax basis realized and unrealized gains and losses. The system takes transaction feeds from the underlying portfolio accounting system as of a given, user-selected, point in time to automatically calculate the most frequently occurring U.S. tax basis adjustments, such as:

  • Short dividend expense disallowance
  • Open cover loss deferral
  • Bond premium/discount accretion/amortization adjustments
  • PFIC MTM adjustments
  • §1256 and other MTM adjustments
  • Wash sales

In addition, a robust manual adjustment facility allows for the lot level input of any required tax basis adjustments. Realized gains and losses are also examined for other required time-of-sale tax adjustments, such as:

  • §988 adjustment for foreign denominated debt instruments
  • Market discount adjustments

Pro-Forma tax adjustment

Understand your tax obligations, even when dealing with pro-forma earnings. All your tax information at the tip of your fingertips, in a simple, easy-to-follow format.

Tax Optimizer is interactive. It uses the results of the investment tax accounting module and, optionally, combines it with other items from the underlying accounting system (e.g. items of portfolio income and expense, other fund income and expense) to create a summary of fund level U.S. taxable income as of a user-selected point in time. During this process, dividend income is classified as either qualified or non-qualified and DRD eligible where lot level dividend income details are available. Similarly, interest income can be designated as taxable or tax exempt.

At interim, the user can view current fund level taxable income at summary and detail levels and make proforma adjustments to it. For example, the portfolio may contain one or more investments with significant wash sale loss deferrals that can be harvested to reduce current taxable income. Those lots can be marked as “assume sold” and the system will immediately recalculate to show the effect on taxable income and GP taxable incentive. Other manual proforma adjustments can also be entered.

At year-end, all previously uncalculated and required book-tax adjustments are manually entered here. Relevant proforma adjustments (except the “assume sold” proforma adjustments) can be marked as final to avoid re-entry.

The processing results can be used to project/finalize fund level taxable income and are used by the tax allocation and compliance reporting services team to allocate fund level taxable income to investors for those clients who engage them.