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Tax planning for ASX 200 investors

Road sign stating Tax Time Ahead,
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It’s nearly June so S&P/ASX 200 Index (ASX: XJO) investors should start considering their tax affairs for FY20. Investors should pay particular attention to anything that reduces the returns they’ve earned for the year. This includes transaction fees, advisor costs, expense ratios and taxes.

Here are a few things you can do to manage your ASX 200 portfolio, prepare for tax time and ensure you only pay the tax you are required to pay.

Rebalance your ASX 200 portfolio allocations

The financial year end provides a great opportunity for you to review your portfolio and investment strategy. This can be particularly relevant for growth investors, or investors who are not contributing more capital to their investment portfolio. 

Growth investors will often have an oversized portion of their portfolio concentrated in a few shares that have done particularly well. Each individual investor will have their own comfort level when it comes to concentration of risk. I was in this position with Altium Limited (ASX: ALU) and The Trade Desk Inc (NASDAQ: TTD) last year. This was because they had both grown much faster than the rest of my portfolio. Personally, I prefer to let my winners run and am continuing to add funds to my investment portfolio. Therefore, these winners are a part of my portfolio I’m comfortable with.         

Pay the piper, later   

Your individual circumstances, including whether your shares are in a gain or loss position, will dictate the best time or times to rebalance your portfolio. For example, if you already have a capital gain in FY20, selling shares at a loss before 30 June will mean you can reduce your gain. If the shares you want to sell down as part of the rebalance are in a gain position, waiting until 1 July could provide you an additional year before the tax is due. This is because the gain will be included in your FY21 tax return.

Organise your shoebox

Whether you give your accountant a shoebox or send them a link to a cloud drive, getting your documents in order prior to year end will give you a better idea of your tax position. This means you can also better plan your cash flows and invest accordingly. 

A further benefit is that if you have all of your Cochlear Limited (ASX: COH) retail entitlement documentation or Telstra Corporation Ltd (ASX: TLS) dividend reinvestment plan purchases organised, your accountant should be able to work more efficiently and you might save on their fees.

Foolish takeaway

Tax shouldn’t be what drives your investment decisions, but it should be a consideration. ASX investors should target outperforming the ASX 200 index’s return, after fees and taxes. Furthermore, legally lowering your average lifetime tax rate can significantly increase your annualised growth rate and wealth over time.

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Lloyd Prout owns shares in Altium Limited and The Trade Desk Inc and expresses his own opinions. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends The Trade Desk. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended Cochlear Ltd. and The Trade Desk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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