Minimum tax method (MinTax)

How it works

Our system prioritizes your tax savings by selecting to sell securities in the order listed below:

1. Short-term capital loss from largest to smallest.
2. Long-term capital loss from largest to smallest.
3. Short-term zero gain or loss.
4. Long-term zero gain or loss.
5. Long-term capital gain from smallest to largest.
6. Short-term capital gain from the smallest to largest.

The MinTax cost basis method is generally designed to lower an individual's tax burden for the current transaction by identifying securities to sell based on the most favorable tax rate using the ordering rules described above. Each category is exhausted before moving to the next. If the cost of the original share is unknown, we'll treat the cost basis as zero.

In many cases, the MinTax cost basis method will minimize the tax impact, but it may not do so in every case. For example, if a taxable account within your portfolio has a position with a large long-term capital gain (e.g., $100,000) and a small short-term capital gain (e.g., $10), the MinTax cost basis method will choose to sell the position held at a large long-term capital gain first. The shares with the most favorable tax rate might not be the shares with the lowest gain. The method's effectiveness at minimizing taxes will vary depending on individual circumstances.

Log in to set or change your cost basis method

Why you might prefer the MinTax method

It's easy to use

The MinTax method automatically chooses which shares to sell.
 

Its redemption method helps deliver tax savings

The order it sells and transfers securities attempts to produce favorable tax rates by prioritizing short-term losses over long-term losses, then long-term gains over short-term gains.

A few things to consider

Some strategies may not benefit from this method

MinTax may not choose the highest priced shares first, instead it prioritizes selling shares with the most favorable tax rate. The shares with the most favorable tax rate might not be the shares with the highest cost or lowest gains.

MinTax does not utilize tax advantageous strategies for transferring or gifting.

Sales involve a mix of covered and noncovered shares

Our systems evaluate each lot by its cost per share and holding period rather than its covered or noncovered status.

Other factors to consider

This cost basis method does not identify or attempt to reduce the number of wash sales you may experience. A wash sales results from selling a security at a loss in a taxable account and repurchasing it, or one the IRS considers "substantially identical," in the same or another account within 30 days before or after the sale is effected. Since the IRS won't allow a taxpayer to claim the loss generated by the sale on that year's tax return, it's important to consider these transactions.

The effects of a wash sale in a taxable account may only be temporary, as you are permitted to add the loss from the sale to the cost basis of the security purchased, and the holding period of the security sold will also be added to the holding period of the purchased security. A wash sale in a tax-advantaged account will cause you to permanently lose the ability to claim the original loss.

The MinTax cost basis method can minimize the tax impact of a transaction in many (but not all) cases. Your tax impact will vary based on the transaction, your tax bracket, or other circumstances. We recommend you contact a tax advisor to see if this cost basis method is right for you.

The method only considers the current transaction and the current taxable year. This method may not be the right approach depending on your long-term goals. Our systems evaluate each lot by its cost per share and holding period rather than its covered or noncovered status.

We recommend that you consult a tax or financial advisor about your individual situation.