Tax Strategy Guide

Taxes can be challenging for the experienced and novices alike. Get our free strategy guide and get a head start on your tax planning

Big overlooked tax strategies photo of clear piggy bank.

Tax planning can be a year-round activity

Although financial decisions are rarely made solely upon their tax impact, a basic understanding of the income tax issues and costs involved may help you as you plan your financial activities throughout the year. Our free tax strategy guide covers:

  • Investing in the long-term
  • Tax-loss harvesting & deferral
  • Charitable donations
  • Bond holdings
  • Tax-efficient distributions
  • Social security

A major goal of proactive tax planning is minimizing federal tax liability now and in the future.  Additional goals might also include charitable giving, making the most of potential credits and deductions, and paying for retirement in the most tax-efficient manner possible.

Although your tax picture is unique to you, there are a few common activities to consider when reviewing your tax reduction strategies:

Invest in the Long-Term

When it comes to your money, it’s not what you earn, it’s what you keep. Investing in the long-term has benefits. Here are some ideas that may help lessen your income tax burden for capital gains, so you can keep more of your investment earnings.

Delay Realizing Gains. Generally, income isn’t taxed until it is received, so you may find it beneficial to delay realizing gains by investing for the long term. Try to hold an asset for more than a year; that way, earnings will be taxed at the lower long-term capital gains tax rate—currently 15 percent or 20 percent (0 percent for taxpayers in lower tax brackets). If assets are held for a year or less, earnings are considered short-term capital gains and taxed at ordinary income rates, which can be as high as 37 percent.

Plan Capital Gains and Losses. Determining when to recognize capital gains or losses depends on whether you want to postpone tax liability (by postponing recognition of gains) or recognize capital gains or losses during the current year. If the capital gains will be subject to a higher rate of tax next year (because of a change in tax bracket), or if you cannot use capital losses to offset capital gains, you may recognize capital gains this year.

Harvest Losses

If you do realize gains, you may be able to offset them with losses. When your losses exceed your gains, you can offset up to $3,000 ($1,500 if married filing separately) of ordinary income, and the rest of your capital losses can be carried forward to be used in future years.

Wash Sale Rule. When harvesting losses, be aware of the wash sale rule. If you purchase a substantially identical position within the period that begins 30 days before you take a loss and ends 30 days after that date, you will have to delay recognizing the loss until you sell the new position. To keep a similar asset allocation while realizing a loss, you can reinvest in securities that are not substantially identical but are expected to move in the same direction as the investment you sold, or you can buy the same security outside of the 61-day window. There isn’t much IRS guidance on what is considered “substantially identical,” but Congress’s intent with the wash sale rule was to prevent investors from taking a loss and keeping the same economic position within the waiting period.

Individual Security Identification. A companion to loss harvesting is individual security identification. To use this method, you must identify the specific lot (i.e., the set of shares bought at a given time and price) that you want to sell at the time of sale, and your broker must acknowledge your identification in writing within a reasonable time thereafter. By identifying a specific security, you can choose to sell for a long-term gain and for smaller gains or bigger losses. Individual security identification can be used for stocks and bonds. For mutual funds, you can specify shares if you are not using an averaging method.


Qualified Dividends. You may be able to invest for the long term and still receive current income from your investment in the form of dividends. If you receive qualified dividends, they are taxed at long-term capital gains rates, as long as you meet the holding period requirement. Generally, qualified dividends are those paid by domestic corporations or by foreign corporations whose stocks trade on an established U.S. stock exchange.

Location of Assets. Another key to tax efficiency is the location of assets. You may want to keep investments that produce current income in a tax-deferred account and investments that produce long-term gains or tax-free income in a taxable account. For example, you can hold corporate bonds and dividend-paying stock in an IRA, so you can defer paying taxes until distribution.

Likewise, you can keep growth stock and municipal bonds in a non-retirement brokerage account to get long-term capital gain treatment on the stock and tax-free treatment on the municipal bond interest.


Appreciated Property. Depending on your specific tax picture, charitable donations could provide a good source of income tax deductions. One tax-saving strategy is to donate appreciated property. You can take a deduction for the fair market value and avoid capital gains tax on the sale.

Stock. If you have a large long-term gain position in stock and a charitable intent, you might consider gifting the stock to charity. You may get a tax deduction based on the fair market value of the stock at the time of the gift, and the charity can sell the stock without paying taxes. Your deduction may be limited to 20–30 percent of your adjusted gross income, but the excess can be carried forward for five years. You can use your tax savings to diversify your portfolio.

Bond Holdings

Municipal Bonds. Tax-exempt municipal bonds are an excellent tax-advantaged investment, especially if you are in a high-income tax bracket or have moved into a higher tax bracket after a promotion or career change. Interest earned on municipal bonds is exempt from federal income taxes and, in most states, from state and local taxes for residents of the issuing states (although income on certain bonds for particular investors may be subject to the Alternative Minimum Tax).

Tax-Equivalent Yield. This is the pretax yield your taxable bonds would have to pay to equal the tax-free yield of a municipal bond in your tax bracket. For example, if you are in the 35 percent tax bracket, a taxable bond would have to yield 6.15 percent to equal a 4 percent yield on a municipal bond.

Diversity Bond Holdings. State tax treatment of out-of-state bonds varies. Although the tax-free income from investing only in your state’s bonds might be alluring, consider diversifying into other state bonds to help minimize risk. Traditionally higher-quality bonds, such as Treasury bonds, may also be part of your holdings. Treasuries are state tax-free but subject to federal tax.

You can get a closer look at individual bonds and bond funds in our insightful article.

Tax Efficient Distributions

Review IRA Opportunities. Tax-efficient distributions are also important. If you want to maximize the timing and amount of IRA distributions as long as possible for your heirs, understanding IRA rules is critical. If you are retiring or changing jobs, consider rolling over the assets in your company’s pension and 401(k) plan to an IRA*.

Distributions from traditional IRAs are taxable. Qualified distributions from Roth IRAs are tax-free. If you have more assets in traditional IRAs, you may consider converting some of those assets into a Roth IRA in a year in which you may have lower taxable income or when tax rates are low. Income limitations for Roth conversions no longer apply.

*If you are considering rolling over money from an employer-sponsored plan, you may have the option of leaving the money in the current plan, rolling over the assets to a new plan, rolling over the assets to an IRA, or cashing out the account value.  Each choice has its advantages and disadvantages and should be discussed with your financial advisor and your tax professional before proceeding.

Mind Your Tax Bracket. During retirement, you can choose from which vehicles you withdraw money (traditional IRA, Roth IRA, variable annuities, or nonretirement brokerage accounts) to keep from going into a higher tax bracket.

Minimizing Tax on Social Security

Reduce MAGI. The key to minimizing taxes on social security retirement benefits is reducing modified adjusted gross income (MAGI). If you or your spouse still earns wages and cash flow is not an issue, consider delaying your application for social security until your taxable income is lower. Delaying receipt of benefits can increase future benefits by as much as 8 percent per year. In addition, a delay can increase the protection for a surviving spouse.

Consider Annuity. Another strategy for reducing MAGI is investing a portion of your portfolio in a nonqualified tax-deferred annuity. With a deferred annuity, only the increase in the value withdrawn is currently considered taxable and added to the MAGI calculation. Please note: This can be a double-edged sword. When a distribution is taken from an annuity. Earnings are taxed at higher ordinary income tax rates, rather than at capital gains rates. Also, beneficiaries don’t receive an increase in tax basis at the annuitant’s death for inherited annuities.

Draw Down Roth First. Another approach that may reduce your tax obligation is to draw down a Roth IRA before touching an employer-provided retirement plan or other type of IRA. Qualified Roth distributions are tax-free and do not enter into the MAGI calculation. But bear in mind that, to qualify, you must be 59½ or older when the distribution is taken, and the Roth distribution must be withdrawn from an account that has existed for at least five years.

We all know there is a lot of misinformation on the web.  That’s why, as part of our GWA Gives© program dedicated to helping others, we believe in sharing free material so people have a trusted source to rely upon.

Seek Professional Advice for Your Tax Strategy

These are just a few of the tax planning strategies available to you. We can work with you and your tax professional to review your current situation and determine which ideas may be beneficial to you.

While these tax strategies can be complicated, we will be happy to make it a little easier by answering any questions you might have.  You can reach a financial advisor at one of our convenient offices listed on the Contact Us page or by filling out the chat form below.

Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged, and investors cannot invest directly in an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance is no guarantee of future results.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer. 

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