When people think about investing, the focus is often on returns, but it’s not just about what you earn. It’s about what you keep. Taxes can quietly erode years of gains if they’re not part of your planning. That’s why more investors are learning how tax-aware investing can support steady, long-term growth.
For many investors, talking through these strategies with an experienced financial advisor can help make sense of the details. At Virtue Asset Management, our team works with advisory clients who want thoughtful guidance to connect smart tax decisions with the bigger picture of wealth planning.
We discuss a few ideas to help you understand what tax-aware investing means and how it might fit into your bigger picture.
What Is Tax-Aware Investing?
At its core, tax-aware investing means managing your portfolio with a clear eye on how taxes affect your net results. It goes beyond simply choosing investments. It includes where you hold different assets, when you sell, and how you coordinate accounts.
This approach can be especially helpful for high-income professionals, business owners, or families with large taxable investment accounts. The more you earn and invest, the more important it can be to avoid giving up more than you need to in taxes each year.
Common Tax Drains on Investment Returns
Taxes show up in a few places you might not expect. For example:
- Capital Gains Taxes: If you sell investments for more than you paid, you may owe tax on those gains. The rate often depends on how long you’ve held the investment.
- Dividends and Interest: Even if you don’t sell, you may owe taxes on dividends or bond interest you receive.
- Short-Term vs. Long-Term Gains: Gains on investments held less than a year can be taxed at higher rates than those held longer.
- Unplanned Sales: Sometimes, people sell assets in one account but don’t think about how it impacts their taxes overall.
When these pieces don’t connect, you can pay more than you need to.
Key Strategies in Tax-Aware Investing
Tax-aware investing encompasses various techniques, tailored to your specific situation. Here are a few common ones:
- Asset Location
Different investments have different tax treatments. Some assets may be better placed in tax-advantaged accounts (like IRAs) while others can be more efficient in taxable accounts. - Tax-Loss Harvesting
Selling investments that have lost value can help offset gains elsewhere, potentially lowering your taxable income. This strategy has rules and limits, but when used thoughtfully, it can add up. - Holding Periods
Timing matters. Keeping an investment long enough to qualify for long-term capital gains rates can sometimes reduce what you owe compared to selling too soon. - Withdrawal Strategies
If you’re taking income in retirement, it helps to know which accounts to tap first. Coordinating withdrawals may help you avoid bumping into higher tax brackets or penalties.
The Power of Compounding Tax Savings
Even small tax savings can grow over time. Just like investment returns compound, so can the money you keep by being mindful about taxes. For example, paying slightly less in taxes every year can add up to a much larger balance down the road. It’s not about avoiding taxes entirely but about making smart decisions to manage them.
How a Coordinated Plan Supports Tax-Aware Investing
Tax-aware investing works best when it’s not done in a vacuum. Ideally, it’s part of a plan that connects your investments with your tax picture, estate plan, and long-term goals. Many people find that working with a financial advisor or wealth management firm can help ensure that investment management, wealth planning, and taxes all align.
A well-connected plan might include regular reviews with your advisor and your CPA, so you’re not caught off guard by changes in tax laws or life circumstances.
Common Pitfalls to Avoid
Tax-aware investing is not about chasing loopholes or putting tax moves ahead of your bigger goals. Here are a few pitfalls to watch for:
- Making changes just for tax reasons without considering risk or timing.
- Overlooking new laws or thresholds that might affect your plan.
- Forgetting to coordinate accounts, which can lead to surprises at tax time.
A thoughtful plan aims to balance tax efficiency with your comfort level and long-term vision.
Closing Thoughts
Tax-aware investing isn’t about complex tricks. It’s about being thoughtful, patient, and ensuring that more of your returns continue to work for you, year after year. Small steps, like planning where you hold your assets and when you sell, can have a real impact over decades.
If you’re wondering whether your current approach could be more tax-efficient, it may help to have a team looking at the full picture. Clients who work with Virtue Asset Management through an advisory relationship receive thoughtful guidance from our fiduciary financial advisor team to align tax-aware investing with broader wealth management strategies, so you can feel confident you’re making the most of what you’ve built.
Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results.
This is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy.
Additional information about Virtue Asset Management is available in its current disclosure documents, Form ADV, Form ADV Part 2A Brochure, and Client Relationship Summary report, which are accessible online via the SEC’s Investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using SEC #801-123564.
Virtue Asset Management is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting, or tax advice.