Tax Mitigation - By: Matt Tuft

At Insight Asset Management, a common challenge clients bring to our attention is the burden of taxes on their investments. The impact of taxes can significantly eat into an investment portfolio’s returns, so it’s important to mitigate this impact as much as possible.

There are a few strategies to help minimize tax liabilities. Firstly, is asset location, which involves strategically placing assets in different types of accounts like IRAs, Roth IRAs, or taxable accounts. Each account type carries its own tax advantages and drawbacks (and eligibility), and the optimal choice depends on your specific circumstances.

Secondly, selecting investments based on their tax implications. While tax consequences may not matter much within tax-sheltered accounts like IRAs or Roth IRA’s, they are crucial in taxable accounts. Every transaction, dividend, or interest payment from investments can trigger taxable events. Thus, when building portfolios in taxable accounts, you should consider prioritizing investments with minimal tax consequences.

Thirdly, is a strategy that can be used called Tax Loss Harvesting. I always thought tax loss harvesting sounded like an odd concept. Don’t you need “losses” in order to “harvest” them? Why would you want losses? And if we do have losses, why would want to harvest them?

The truth is losses are inevitable when you invest in the stock market. Stock prices fluctuate and over time we hope they fluctuate up more than they fluctuate down, but when the prices do fall, we can take advantage of those losses in the price of the security to help offset gains we may have in other securities.

Tax-loss harvesting is the timely selling of securities at a loss to offset the amount of capital gains tax owed from selling profitable assets. This transaction is done with the idea that we will invest that money into a similar asset to maintain a portfolio’s asset mix and expected risk and return levels. You just must avoid buying back the same security that was sold at a loss, which may violate the IRS wash-sale rule.

As they say, there are only two things certain life, death and taxes. As financial advisors, we can’t do anything about the certain of death, but at Insight Asset Management work with our clients to minimize their tax burdens while they are alive.

Feel free to reach out to me at matt.tuft@insightassetmgmt.com or 303-902-8885 if you'd like to talk about the specifics of your plan.

Insight Asset Management provides investment advisory services and is licensed to provide investment advisory services through Panoramic Investment Advisors, a Registered Investment Adviser. This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.

Stacie CraddockMay 3, 2024