Broker Check

You Received Your Tax Return, Now What?

Every Investment Decision has Tax Implications

Optimal asset location: Refers to the strategic placement of different types of investments across various account types (such as taxable accounts, tax-deferred accounts like traditional IRAs or 401(k)s -- and tax-free accounts like Roth IRAs) to minimize taxes and maximize after-tax returns.

Take advantage of your losses in non-retirement accounts: Selling a position that has fallen below its cost basis generates a loss that can be carried forward to offset a gain elsewhere or at another time. Be sure to take advantage of these losses throughout the year as they can be valuable for managing your taxes.

Pay attention to the holding period: If you hold an investment for less than a year, any gains you realize will be taxed as ordinary income, which can significantly impact your tax bill. Therefore, it is advisable to avoid short-term gains when using tax-managed strategies.

Reduce portfolio turnover: High turnover strategies that frequently sell positions at a gain can erode your after-tax returns. Therefore, it is important to keep your portfolio turnover low, which can help to maximize your after-tax returns.

Eliminate wash sales: When selling a security for a loss, be sure not to buy the same or a similar position within 30 days, as this can result in a wash sale. By avoiding wash sales, you can preserve the tax benefits of realizing losses.

Capital gains management: In some cases, future capital gains taxes can be avoided by passing assets on to heirs or donating them to charity through donor advised funds. Be sure to consider these options as part of your overall tax management strategy.

Select tax lots: When selling a portion of a position, be strategic about which lots you sell. Evaluating your situation can potentially improve your after-tax returns.