Picture this: You check your brokerage account and your portfolio has soared. You feel like a financial genius—until tax season rolls around, and your accountant delivers the bad news: you owe way more in taxes than you expected.
If you’re an American living in Israel with U.S. brokerage or IRA accounts, you already know that managing cross-border finances isn’t always straightforward. What you see in your investment account isn’t necessarily what you keep. But with a little strategic planning, you can make sure you’re not handing over more to taxes than necessary.
Paper Gains vs. Real Money: What’s the Difference?
Think of your investments like real estate. If your house jumps in value but you don’t sell it, you don’t owe taxes—yet. That’s called an unrealized gain—you’re wealthier on paper, but the IRS isn’t knocking on your door.
But the moment you sell that house (or stock) at a profit? That’s a “realized gain,” and the tax bill may follow.
This is why some investors hesitate to sell profitable stocks—they fear the tax hit. Others sell too quickly, without realizing how much of their gain they’ll lose to taxes. The key is knowing when to sell—not just from an investment perspective, but a tax perspective.
The legendary Warren Buffett, one of the world’s most successful investors, once said, “The stock market is designed to transfer money from the impatient to the patient.” Translation? Being smart about when you sell—not just reacting to market moves—could save you a fortune.
Bad Timing Can Cost You Big
Selling an investment at the wrong time can lead to an unnecessarily high tax bill. Imagine an investor who cashes out a profitable stock in December, adding to his taxable income for the year. Because of this, he ends up in a higher tax bracket, owing more in taxes than he expected. If he had waited just a few weeks until January, the gain might have been taxed at a lower rate… or would not have been due for another year.
This is why timing matters—not in the sense of predicting stock prices, but in managing taxes wisely.
One tax trick savvy investors use? Tax-loss harvesting. Let’s say you made $50,000 in gains this year. If you also have a stock that’s down $15,000, selling it could reduce your total taxable gain to $35,000—meaning a smaller tax bill. Think of it like cleaning out your closet—getting rid of old clutter to make room for better things.
Your 1099 Might Be Hiding the Truth
Many investors only check their 1099 tax form, assuming it tells the full story. Big mistake.
Your 1099 reports dividends, interest, and capital gains, but it may leave out key details, like the original price you paid for your investments (also known as the “cost basis”).
This is especially dangerous if you’ve transferred investments between brokers. If your new brokerage doesn’t have records of what you originally paid, the IRS might assume you paid less, making your taxable gain look bigger than it really is.
Fix this by checking your December year-end brokerage statement—it often has the details your 1099 doesn’t. Otherwise, you could be paying taxes on money you never actually made.
Did Your Cost Basis Disappear? Here’s Why It Matters
One of my clients recently discovered this firsthand. He had owned several stocks for decades, but when he transferred his brokerage account, he noticed that his new statements didn’t include the cost basis for some of his oldest holdings. Understandably, he was concerned—without that information, he had no way of knowing his true gains or the potential tax hit he might face when selling.
This wasn’t an accident. Before 2011, brokers weren’t required to transfer cost basis information when clients moved accounts. While modern transfers usually include this data, older investments often got lost in the shuffle, leaving investors in the dark about their actual purchase prices.
I advised him to dig through his records—old brokerage statements, trade confirmations, or even tax returns—to find his original purchase prices. Once he provided the numbers, we updated his account so that his cost basis would appear on all future statements. That one small step gave him—and me—a much clearer picture of his investments.
Why does this matter? Because knowing the cost basis isn’t just about taxes—it’s about making smarter investment decisions. If we know exactly when he bought each stock and how much profit is embedded, we can make more informed choices about when and how to sell. For example, if he had a large unrealized gain, we might strategically sell in a year when his income is lower to reduce his tax bill. Or, if he had losses in other areas, we could use them to offset some of his gains.
Bottom line: Cost basis isn’t just a number—it’s a key part of a well-planned investment strategy. If yours is missing, don’t wait for tax season to find out. Take a look now, and make sure you’re not leaving money on the table.
Want to Keep More of Your Money? Here’s What to Do.
At the end of the day, what matters isn’t just how much you make—it’s how much you get to keep.
- Before selling, consider the tax impact. A well-timed sale could mean a smaller tax bill.
- If you’ve got losing stocks, use them to offset gains. No one likes a loss, but at least you can turn it into a tax advantage.
- Don’t rely only on your 1099—double-check your brokerage statements. Hidden mistakes could cost you.
Want to dive deeper into smarter tax strategies? Check out this quick video on understanding capital gains tax. Your future self will thank you!
Douglas Goldstein, CFP® is the director of Profile Investment Services, Ltd. www.Profile-Financial.com. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of this website, Portfolio Resources Group, Inc. or its affiliates. Neither Profile nor Portfolio Resources Group, Inc. or its affiliates, provide tax or legal advice. Nothing in this article is intended to be investment, tax, or legal advice. Information in this article is gathered from sources considered reliable, but we cannot guarantee their accuracy. Past performance is no guarantee of future returns.
