As the April 15 tax filing deadline approaches, investors should focus on strategies to maximize tax efficiency in their portfolios. Tax-efficient investing not only reduces liabilities but also empowers you to preserve and grow your wealth. Below are actionable tips to optimize your investments before filing your taxes, putting you in control of your financial future.
Key Strategies for Tax-Efficient Investing
1. Leverage Tax-Advantaged Accounts
Investors can reduce taxable income by contributing to tax-advantaged accounts such as:
• Traditional IRAs and 401(k)s: Contributions are tax-deductible, and earnings grow tax-deferred until withdrawal.
• Roth IRAs: Funded with after-tax dollars, these accounts allow tax-free growth and withdrawals in retirement. Roth accounts are ideal for those expecting higher future tax rates.
2. Practice Tax-Loss Harvesting
Offset capital gains by selling underperforming investments to realize losses. The IRS allows you to deduct up to $3,000 of net losses against ordinary income annually, with excess losses carried forward to future years.
3. Optimize Asset Location
Strategically allocate investments across taxable, tax-deferred, and tax-exempt accounts:
• Place high-dividend stocks or corporate bonds in tax-deferred accounts like IRAs.
• Use municipal bonds or Series I Treasury bonds in taxable accounts since their interest income is often exempt from federal taxes.
4. Hold Investments for Long-Term Gains
Long-term capital gains (on assets held for over a year) are taxed at lower rates than short-term gains. To take advantage of these favorable rates, it's important to plan for the long term and avoid selling investments prematurely. This approach can provide a sense of security and confidence in your investment decisions.
5. Maximize Retirement Contributions
Contributing the maximum allowable amount to retirement accounts can immediately reduce taxable income. For 2025, consider spreading contributions throughout the year to avoid last-minute payments.
6. Consider Tax-Efficient Investment Vehicles
Invest in products designed to minimize taxable distributions, such as:
• Tax-managed funds and ETFs: These generate fewer capital gains events.
• Municipal bonds: Interest income is federally tax-exempt and often state-tax-free if issued in your state.
Additional Considerations Before April 15
Review Your Portfolio
Take stock of your short-term and long-term investments. Ensure you’ve accounted for any realized gains or losses and adjusted your portfolio accordingly.
Plan for Potential Policy Changes
With provisions of the Tax Cuts and Jobs Act (TCJA) set to expire in late 2025, investors should remain vigilant about potential shifts in tax brackets or deductions that could impact future planning.
Consult a Financial Advisor
Tax-efficient investing requires careful planning tailored to individual circumstances. A financial advisor can provide valuable insights, identify opportunities specific to your portfolio, and ensure compliance with IRS rules. Their expertise can give you peace of mind and support in your financial planning.
Conclusion
Tax planning is essential for maximizing after-tax returns and reducing liabilities as the filing deadline approaches. By leveraging tax-advantaged accounts, practicing strategic asset allocation, and utilizing tools like tax-loss harvesting, investors can optimize their portfolios while staying compliant with IRS regulations.
Disclosure
This material is not intended to serve as personalized tax, legal and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Duncan Williams Asset Management is not a legal or accounting firm. Please consult with your legal or tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.
This article is for informational purposes only and should not be considered as investment, tax, or legal advice. The information provided is based on current tax laws and regulations, which are subject to change. Investors should consult with a qualified financial advisor, tax professional, or legal counsel to address their specific circumstances. Past performance is not indicative of future results, and all investments carry risks, including the potential loss of principal. The named sources in this article are referenced for informational purposes and do not constitute endorsements.
Sources:
- Charles Schwab Wealth Advisory Team
URL: https://www.schwab.com/wealth-advisory - KPMG Personal Tax Planning Guide
URL: https://home.kpmg/xx/en/home/services/tax/personal-tax-planning.html - IRS Guidelines on Tax-Loss Harvesting
URL: https://www.irs.gov/taxtopics/tc409 - Tax Cuts and Jobs Act (TCJA) Overview
URL: https://www.congress.gov/bill/115th-congress/house-bill/1 - Municipal Bonds Tax Benefits (Investopedia)
URL: https://www.investopedia.com/terms/m/municipalbond.asp
David Scully
David Scully has over 20 years of experience in investment research and team management. As President, he oversees the company’s daily operations and implements its strategic objectives. David holds the Chartered Financial Analyst (CFA®) and Certified Financial Planner (CFP®) designation. A graduate of the University of Georgia with a bachelor’s degree in economics, David is a proud Memphis native deeply committed to his community. He actively contributes to numerous organizations, holding leadership positions such as: • President, Board of Directors, Wolf River Conservancy • President, Board of Directors, Memphis Botanic Garden • Treasurer, Board of Directors, Assisi Foundation • Vice President, Board of Directors, Economic Club of Memphis • Member, Boards of Directors, University of Memphis Foundation, St. Agnes Academy, and CBHS Alumni Board David also serves on the Greater Memphis Chamber of Commerce’s Chairman’s Circle and Small Business Council. Previously, he was Treasurer for the University of Memphis Research Foundation Board and remains an engaged Young Presidents’ Organization (YPO) member. Beyond his professional and civic endeavors, David values his role as a husband to Michelle and father to their two daughters, Ruthie and Mae Carter. He is an enthusiastic coach who supports his daughters in basketball, soccer, and softball. Faith and family are central to David’s life, and the Scully family are active members of St. Peter Church.
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