Tax Efficient Investing

It’s not what you make, but what you keep after taxes that counts. And these days, tax-efficient investing is more important than ever.

Taxes can take a chunk out of your investment returns; yet, many investors don’t give much thought to taxes when they make investment decisions. While investment decisions shouldn’t be based entirely on tax considerations, tax efficient investing may make a significant difference in your net gain. Employing some of the following strategies could help you retain more of your potential investment earnings and lessen your tax obligation.

Tax Loss Harvesting
For many investors, tax gain/loss harvesting is the single most important tool for reducing taxes now and in the future. If properly applied, it can save you taxes and help you diversify your portfolio in ways you may not have considered. Although it can’t restore your losses, it can certainly soften the blow. For example, a loss in the value of security A could be sold to offset the increase in value of Security B, thus eliminating the capital gains tax liability of Security B.

Tax-Efficient Separate Accounts
A separate account approach differs from a mutual fund solution in that investors do not inherit gains generated by other investors, and are not exposed to the mandatory taxable gains that are common with mutual funds. Utilizing a number of separate account managers working in concert with one another and with a tax overlay manager, three tiers of tax management can be applied in an attempt to decrease your tax burden to Uncle Sam and therefore, increase your after-tax returns:

1. Initial transition into the portfolio: Minimize taxes since the money managers can work around some of the investor’s appreciated holdings so that those securities do not have to be sold, thereby incurring a gain.
   
2. Aggressive loss harvesting for the life of the account: Realize capital losses to offset gains, either within the portfolio or outside of the portfolio, without hurting the overall performance of the account.
   
3. Customized tax management each year end: Further alleviate any adverse tax events that may have occurred during the calendar year.
   In analyzing your account every day, the overlay manager can implement a host of tax management techniques to minimize the overall tax impact across all of the stocks overseen.

Neither Woodbury, Financial Services, Inc, nor its Representatives or employees are engaged in rendering legal accounting or tax advice. If legal advice is required, the services of a practicing professional should be sought. If tax or accounting advice is needed, contact the currently practicing professionals at Strategic Capital Advisors.