Investment gains are exciting—until tax season arrives and you see how much you owe. Many investors unknowingly pay more in taxes than necessary because they overlook key strategies.
1. Understanding Capital Gains
- Short-term gains (assets held less than a year) are taxed at ordinary income rates—sometimes over 37%.
- Long-term gains (assets held more than a year) receive preferential rates, typically 0%, 15%, or 20%.
2. Dividends and Interest
Qualified dividends may be taxed at the lower capital gains rate, but non-qualified dividends and interest are taxed at ordinary income rates.
3. Strategies to Reduce Taxes:
- Tax-Loss Harvesting: Selling losing investments to offset gains.
- Asset Location: Placing tax-inefficient investments in IRAs or 401(k)s and tax-efficient ones in taxable accounts.
- Holding Period Awareness: Delaying sales to qualify for long-term rates.
- Marginal Tax Rates: Strategic planning for the boundaries of marginal tax brackets can make a significant difference in what you are paying out at tax time.
4. Watch for “Phantom Income”
Investments in certain funds or partnerships can generate taxable income you didn’t actually receive in cash—plan for it.
Smart investment management isn’t just about performance—it’s also about after-tax returns. Want a second opinion on your investment tax strategy? We’ll review your portfolio through a tax-focused lens to see what you could be keeping instead of sending to the IRS.