Method and apparatus for enabling small investors with a portfolio of securities to manage taxable events within the portfolio

• US 6,161,098 A
• Filed: 09/14/1998
• Issued: 12/12/2000
• Est. Priority Date: 09/14/1998
• Status: Expired due to Term

• Current Assignee: Folio Financial Incorporated (Goldman Sachs Group Incorporated)
• Original Assignee: Folio (Fn). Inc.
• Inventors: Wallman, Steven M.H.
• Primary Examiner(s): Stamber, Eric W.
• Assistant Examiner(s): MEINECKE DIAZ, SUSANNA M
• Application Number:
  US09/153,143
• Time in Patent Office: 820 Days
• Field of Search: 705/35, 705/36, 705/30, 705/31, 705/37
• US Class Current: 705/36.00T
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/10 Tax strategies

Abstract

A method and apparatus enables an investor with a portfolio of securities to manage taxable events created by trading securities in the portfolio. A database stores information regarding securities purchased by the investor. A presentation and graphical display format directly linked to the system managing the portfolio of securities enables the investor easily to make a selection as to the shares to be sold for the desired cash and tax results. A graphical display interface provides the investor with a graph having at least two axes showing cash to be received on one axis, and the tax result on another axis, with the investor permitted to click on points that are available. In generating the graph, each point available for selection represents an intersection of a cash and tax result based on the investor'"'"'s purchases and the current expected sales price for the securities. Once the investor selects his preferred outcome, the system notes those securities (by specific lot, price, date and other identifying means) that correspond to that outcome for sale. The graphical user interface and connection and linkage to a system for managing a portfolio of securities or some other record keeping, order handling and execution system resolves the problem of making complex and difficult determinations to achieve a cash/tax goal with a simple and single click of a mouse.

Claims

1. A method for enabling a user to determine tax consequences from selling a plurality of assets/liabilities, said method comprising the steps of:

a) determining a plurality of potential tax consequences that would result from trading various combinations of the plurality of assets/liabilities, wherein each of the plurality of potential tax consequences represents the potential tax consequence that would result from trading one particular subset of assets/liabilities from among the plurality of assets/liabilities;

b) determining a plurality of potential proceeds for each of the plurality of potential tax consequences that would result from trading the various combinations of the plurality of assets/liabilities; and

c) displaying the plurality of potential proceeds and the plurality of potential tax consequences in a graph having at least two dimensions.

2. The method according to claim 1, further comprising the step of trading automatically one of the subsets of assets/liabilities based upon a desired tax consequence selected by the user.

3. The method according to claim 1, wherein the step of displaying further comprises the step of displaying the plurality of potential proceeds and the plurality of potential tax consequences on a graph with one axis representing the potential proceeds and another axis representing the potential tax consequence that would result from trading particular subsets of assets/liabilities from among the plurality of assets/liabilities, wherein each potential trade of a particular subset of the assets/liabilities from among the plurality of assets/liabilities is plotted as a point in the graph, and each point has an attribute related to both a potential proceeds and a potential tax consequence resulting from a trade of the associated particular subset of assets/liabilities.

4. The method according to claim 1, wherein the graph has three axes, in which one axis identifies the potential tax consequences, another axis identifies sales proceeds, and the third axis identifies a particular asset/liability.

5. The method according to claim 1, further comprising the step of maintaining an association of each asset/liability to each of the points plotted in the graph.

6. The method according to claim 1, further comprising enabling the user to select one of the points in the displayed graph and then identifying to the user a specific potential tax consequence and a specific potential proceeds comprising that point, and a list of the assets/liabilities tradable to obtain the specific potential tax consequence and the specific potential proceeds.

7. The method according to claim 5, further comprising enabling the user to indicate a desired potential tax consequence and a desired potential proceeds by selecting one of the points in the graph, and then identifying to the user which of the assets/liabilities must be traded to obtain the desired tax consequence and desired potential proceeds.

8. The method according to claim 1, further comprising highlighting significant points in the graph.

9. The method according to claim 1, further comprising highlighting significant lines in the graph.

10. The method according to claim 8, wherein the significant points include a maximum potential gain.

11. The method according to claim 9, wherein the significant lines include potential proceeds realized with a potential zero tax consequence.

12. The method according to claim 1, further comprising the step of enabling the user to indicate a desired potential proceeds and outputting a list of assets/liabilities to sell to obtain the desired potential proceeds while incurring a specified tax consequence.

13. The method according to claim 1, further comprising the steps of:

determining for each asset/liability whether the asset/liability has been held for a sufficient time to qualify for long-term capital gain treatment, and showing as the result a graph.

14. The method according to claim 13, wherein the graph includes as two separate graphs, the tax-cash positions for short-term and long-term capital tax treatment.

15. The method according to claim 1, further comprising the steps of enabling the user to time shift the portfolio by specifying a date and having the tax consequences reflected in the portfolio and current prices transformed to long-term gain from short-term gain as time is deemed to be passing regarding the portfolio'"'"'s holdings.

16. The method according to claim 1, further comprising the steps of determining a tax savings resulting from a passage of time in a conversion of short-term gains to long-term gains in the event of a sale of an asset/liability and determine the reduction in price from current price levels that would be needed to offset the tax savings.

17. The method according to claim 2, further comprising exporting the information regarding assets/liabilities traded to a tax program, in a format that automatically inserts such information in appropriate places for inclusion in such program for reporting to appropriate governmental agencies.

18. The method according to claim 16, further comprising receiving information from a tax program, and comparing the information to database information regarding the plurality of assets/liabilities to identify potential tax savings from engaging in a transaction involving any of the assets/liabilities in the database.

19. The method according to claim 1, further comprising the steps of:

maintaining a basis and date of acquisition for each of the plurality of assets/liabilities in the portfolio;

obtaining a trading price for each of the plurality of assets/liabilities in the portfolio;

displaying the plurality of potential proceeds and the plurality of potential tax consequences on a graph with one axis representing the potential proceeds and another axis representing the potential tax consequence that would result from trading particular subsets of assets/liabilities from among the plurality of assets/liabilities, wherein each potential trade of a particular subset of the assets/liabilities from among the plurality of assets/liabilities is plotted as a point in the graph, and each point has an attribute related to both a potential proceeds and a potential tax consequence resulting from a trade of the associated particular subset of assets/liabilities;

maintaining an association of each of the plurality of assets/liabilities to each of the points plotted in the graph displayed to the user;

enabling the user to select one of the points in the graph being displayed thereby indicating the user'"'"'s desired tax consequence and desired proceeds;

identifying to the user which of the plurality of assets/liabilities are tradable to obtain the user'"'"'s desired tax consequences and desired proceeds; and

executing a trade of the assets/liabilities identified.

20. The method according to claim 1, further comprising the step of soliciting from the user an estimate of the user'"'"'s marginal tax rate.

21. The method according to claim 1, further comprising the step of calculating an expected tax to be paid in connection with a proposed trade.

22. The method according to claim 1, further comprising the step of calculating an expected tax to be paid in connection with a proposed series of trades.

23. The method according to claim 1, further comprising the steps of distinguishing between long-term and short-term gain and loss, and depicting the two as two separate graphs.

24. The method according to claim 1, further comprising the steps of distinguishing between long-term and short-term gain and loss, and depicting the two as a superimposed combination of graphs.

25. The method according to claim 1, further comprising the steps of distinguishing between long-term and short-term gain/loss, and combining the long-term and short-term gain/loss according to then applicable tax rules to create a combined net effect for various combinations of trades.

53. The method according to claim 1, further comprising the step of trading one of the subsets of assets/liabilities based upon a desired combination of tax consequence and potential proceeds selected by the user.

54. The method according to claim 1, further comprising the step of trading one of the subsets of assets/liabilities based upon a desired combination of tax consequence and potential proceeds selected by the user by clicking on a point on the graph representing said desired combination of tax consequence and potential proceeds.

55. The method according to claim 1, wherein the graph has three axes, in which one axis identifies the potential tax consequences, another axis identifies sales proceeds, and the third axis identifies time.

56. The method according to claim 1, further comprising enabling the user to select one of the points in the displayed graph and then identifying to the user a specific potential tax consequence and a specific potential proceed comprising that point.

57. The method according to claim 8, wherein the significant points include a maximum potential loss.

58. The method according to claim 8, wherein the significant points include a point where the potential proceeds are maximized while remaining tax neutral.

59. The method according to claim 8, wherein the significant points include a point where the potential proceeds are maximum.

60. The method according to claim 9, wherein the significant lines include potential proceeds that can be received with a specified amount of potential tax consequence.

61. The method according to claim 9, wherein the significant lines include potential tax consequences that can be achieved with a specified amount of potential proceeds.

62. The method according to claim 1, further comprising the steps of:

determining for each asset/liability whether the asset/liability has been held for a sufficient time to qualify for long-term capital gain treatment.

63. The method according to claim 13, wherein the graph includes one composite graph of two such graphs superimposed on each other.

64. The method according to claim 13, wherein the graph includes one graph of the combined effect utilizing applicable tax rules showing the results of a combination of various sales involving both short and long-term capital asset qualified assets/liabilities.

65. The method according to claim 13, wherein the graph is a three dimensional graph showing long-term capital gain or loss on one axis, short-term capital gain or loss on another axis, and proceeds to be realized on a third.

66. The method according to claim 2, further comprising exporting the information regarding assets/liabilities traded.

67. The method according to claim 2, further comprising exporting the information regarding assets/liabilities traded to a tax program.

68. The method according to claim 16, further comprising receiving information from a tax program.

69. The method according to claim 1, further comprising the steps of distinguishing between long-term and short-term gain and loss.

26. A computer-readable medium storing instructions that, when executed by a processor, cause the processor to participate in actions comprising:

maintaining a tax basis registry storing a basis for each asset/liability;

calculating a potential tax consequence for each asset/liability in the registry selected by the user for potential trade and the potential proceeds from the potential trade;

presenting a graphical representation of at least two dimensions of an overall tax consequence for each possible combination of trade of the selected assets/liabilities and potential proceeds resulting from each possible combination of trade; and

interacting graphically with the user to enable the user to indicate a desired combination of tax consequences and potential proceeds.

27. The medium according to claim 26, further comprising interacting with a computer program that calculates a taxable effect of a transaction based on other taxable transactions, income and other taxable items known to the user or expected to be engaged in by the user.

28. The medium according to claim 26, further comprising implementing an expert agent that manages tax effects and alerts the user to various strategies that the user may wish to employ.

29. The medium according to claim 28, wherein the expert agent monitors the user'"'"'s tax position by comparing tax effects from various proposed or available transactions and determining whether any such transactions achieve goals preset by the user.

30. The medium according to claim 29, wherein the goals include predetermined levels of long-term gain.

31. The medium according to claim 29, wherein the expert agent then alerts the user as to the satisfaction of such goals by a pop-up window.

32. The medium according to claim 29, wherein the expert agent sends an order to the electronic trading system to execute the transaction identified by the expert agent without any user intervention.

33. The medium according to claim 29, wherein the expert agent sends an order to the electronic trading system to execute the transaction identified by the expert agent with confirmation by the user.

70. The medium of claim 26, further comprising displaying a two-dimensional graphical representation of the tax consequence and potential proceeds for each possible trade.

71. The medium of claim 26, further comprising listing assets that must be traded to meet the tax consequences and potential proceeds desired by the user.

72. The medium of claim 26, further comprising enabling the user to authorize a trade of the specific assets/liabilities.

73. The medium of claim 26, further comprising providing the user with confirmation of a trade of the specific assets/liabilities.

74. The medium according to claim 29, wherein the goals include predetermined levels of long-term loss.

75. The medium according to claim 29, wherein the goals include predetermined levels of short-term gain.

76. The medium according to claim 29, wherein the goals include predetermined levels of short-term loss.

77. The medium according to claim 29, wherein the goals include predetermined levels of proceeds.

78. The medium according to claim 29, wherein the goals include predetermined levels of taxable effects.

79. The medium according to claim 29, wherein the expert agent then alerts the user as to the satisfaction of such goals by an e-mail alert.

80. The medium according to claim 29, wherein the expert agent then alerts the user as to the satisfaction of such goals by a notice in a file.

34. A system for enabling a user to determine tax consequences from selling a plurality of assets/liabilities comprising the steps of:

a processor determining a plurality of potential tax consequences that would result from trading various combinations of the plurality of assets/liabilities, wherein each of the plurality of potential tax consequences represents the potential tax consequence that would result from trading one particular subset of assets/liabilities from among the plurality of assets/liabilities, said processor also determining a plurality of potential proceeds for each of the plurality of potential tax consequences that would result from trading the various combinations of the plurality of assets/liabilities; and

a display coupled to the processor and displaying the plurality of potential tax consequences and the potential proceeds corresponding with each of the plurality of potential tax consequences determined by the processor in a graph having at least two dimensions.

35. The system according to claim 34, further comprising:

a user input device coupled to the display and indicating a user desired tax consequence to the system; and

a portfolio manager coupled to the user input device and enabling a user to identify a trade of assets/liabilities to obtain a user desired tax consequence.

36. The system according to claim 35, further comprising an electronic trading system coupled to the portfolio manager, wherein the portfolio manager forwards the trade of the assets/liabilities to the electronic trading system, which executes the trade.

37. The system according to claim 36, wherein the electronic trading system passes trading information regarding the assets/liabilities to the portfolio manager.

38. The system according to claim 34, wherein the display displays the plurality of potential proceeds and the plurality of potential tax consequences on a graph with one axis representing the potential proceeds and another axis representing the potential tax consequence that would result from trading particular subsets of assets/liabilities from among the plurality of assets/liabilities, wherein each potential trade of a particular subset of the assets/liabilities from among the plurality of assets/liabilities is plotted as a point in the graph, and each point has an attribute related to both a potential proceeds and a potential tax consequence resulting from a trade of the associated particular subset of assets/liabilities.

39. The system according to claim 38, further comprising a database for maintaining an association of each asset/liability to each of the points plotted in the graph that is displayed to the user.

40. The system according to claim 39, wherein the user input device comprises a user selection routine enabling the user to select one of the points in the graph being displayed, and the processor further comprises a routine identifying to the user via the display which of the assets/liabilities are tradable to obtain a desired tax consequence and a corresponding desired proceeds.

41. The system according to claim 35, further comprising a database for maintaining a basis and date of acquisition for each asset/liability.

42. The system according to claim 36, wherein said portfolio manager obtains a trading price for each of the assets/liabilities.

43. The system according to claim 42, wherein said display displays the plurality of potential proceeds and the plurality of potential tax consequences on a graph with one axis representing the potential proceeds and another axis representing the potential tax consequence that would result from trading the various subsets of assets/liabilities from among the plurality of assets/liabilities, each potential trade of a particular subset of the assets/liabilities from among the plurality of assets/liabilities is plotted as a point in the graph, and each point has an attribute related to both a potential proceeds and a potential tax consequence resulting from a trade of the associated particular subset of assets/liabilities.

44. The system according to claim 43, wherein a database maintains an association of each asset/liability to each of the points plotted in the graph being displayed to the user.

45. The system according to claim 44, wherein the user input device enables the user to select one of the points in the graph being displayed thereby indicating the user'"'"'s desired tax consequence and corresponding desired proceeds.

46. The system according to claim 45, wherein the portfolio manager identifies for the user which of the assets/liabilities are tradable to obtain the desired tax consequence and corresponding desired proceeds, and executes a trade of the assets/liabilities identified upon confirmation by the user and confirms such trade to the user.

47. An apparatus for enabling a user to determine capital asset tax consequences from selling a plurality of securities within a portfolio of securities and to obtain a desired capital asset tax consequence and a desired proceeds, said apparatus comprising:

means for calculating a potential capital asset tax consequence and a potential proceeds resulting from trading each of the plurality of securities;

means for determining a series of sums of the capital asset tax consequences that would result from various combinations of trades of particular subsets of the securities from among the plurality of securities;

means for ascertaining potential proceeds associated with each of the series of sums resulting from the various combinations of trades of the particular subsets of the securities from among the plurality of securities used by the determining means;

means for displaying to a user in a graph having at least two dimensions the series of sums and the associated potential proceeds, wherein one axis represents the capital asset tax consequence and another axis represents the proceeds resulting from trading the securities, each of the sums being plotted as a point in a graph, and each point having an attribute related to a potential capital asset tax consequence and another attribute related to the potential proceeds resulting from a trade of the securities underlying each of the points.

48. The apparatus according to claim 47, further comprising:

means for maintaining an association of each security to each of the points plotted in the graph being displayed to the user; and

means for enabling the user to indicate a desired tax consequence by selecting one of the points in the graph and identifying for the user which of the securities are sellable to obtain the desired tax consequence.

49. The apparatus according to claim 48, further comprising means for executing a trade of the securities identified by the user.

50. The apparatus according to claim 47, further comprising means for updating the graph upon receipt of new market data regarding the securities in the portfolio or upon a change in the securities in the portfolio.

51. The apparatus according to claim 49, further comprising means for confirming to the user the trade of the securities identified by the user.

52. The apparatus according to claim 47, further comprising means for displaying an updated graph when there is a change in the securities in the portfolio showing the change that occurs when securities are sold from the portfolio, and noting the taxable income and the expected tax from any such sale.