Essential Tax-Smart Investment Strategies

Written by Michelle Guissinger, CPA, CFP®, CDFA®

Sorting through dozens of articles on tax-efficient investing can become confusing, complicated, and downright frustrating. We've assembled this list of strategies to provide a broad overview and kickstart your research process without the hassle.

If you want to learn more about any of these topics, we've linked helpful resources in every section to guide you on your journey.

Leverage Tax-Loss Harvesting to Your Advantage

Stormy markets can be dangerous to everyone who sails them, but tax-smart investors are always prepared to take advantage of a down year. As one of the primary tax strategies during volatility, tax-loss harvesting entails selling your assets that have lost value to offset gains elsewhere in your portfolio.

This strategy may appear straightforward, but there are many implications to note:

• Sell according to your strategy: Often, the best candidates for tax-loss harvesting are poor performers that don't match your current investment needs. After selling, you can use the proceeds to replace those investments with new ones that conform to your long-term plan.
• Keep transaction costs in mind: Selling your assets can trigger transaction costs. If these costs eclipse the resulting tax advantage, you will realize that offsetting your gains and the sale could do more harm than good.
• Watch out for the "wash-sale rule": Reporting losses isn't allowed if you sell at a loss and then rebuy the same or a "substantially identical" asset within 30 days. The IRS enacted this rule to stop investors from arbitrarily selling and rebuying to lower their taxes.
• Harvesting without capital gains: Even if you don't have any capital gains to counterbalance, you can still benefit from tax-loss harvesting. The IRS allows you to offset your income tax by taking up to $3,000 in capital losses, providing you with a ray of sunshine no matter how dark the clouds are.

Opportunities exist in every market if you have a plan. Sometimes, that opportunity involves selling off your losses. Check out this informative tax loss harvesting article to go more in-depth on these points and learn additional tips and tricks.

Invest in Tax-Diversified Accounts

When considering the long-term tax implications of retirement, the significance of tax diversification cannot be understated. No matter the size of your portfolio, the right amount of advanced planning can make a definitive difference in your retirement...

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