The return on your investments and what you actually keep after taxes aren’t the same number, and the gap between them is often larger than people expect. A handful of structural decisions determine most of that gap, and they’re available to almost anyone, not just people with complex portfolios.
Part of our guide: Crypto Taxes.
Hold Long Enough to Get the Better Rate
The single biggest lever most investors control directly is holding period. Assets held longer than a year qualify for long-term capital gains rates, which top out well below the ordinary income rates applied to short-term gains. Selling a position a few weeks early to lock in a small gain can mean paying a materially higher tax rate on it than waiting would have required.
Use Losses Deliberately
Tax-loss harvesting means selling positions that have dropped in value to realize a loss you can use to offset gains elsewhere in your portfolio, or up to $3,000 of ordinary income per year if losses exceed gains, with the excess carried forward indefinitely. This works best as an ongoing practice rather than a once-a-year scramble in December, since losses are most useful when they’re realized close to when you actually have gains to offset.
Put the Right Asset in the Right Account
Where you hold an investment matters as much as what you hold. Assets that generate a lot of taxable income each year, like bonds or actively managed funds with high turnover, are often better placed in tax-advantaged accounts. Assets you expect to hold for the long term with lower ongoing distributions can sit more efficiently in a taxable account, since you control when you trigger the gain.
Don’t Overlook Charitable Giving as a Tool
If you’re charitably inclined, donating appreciated securities directly instead of cash lets the charity receive the full value without either of you paying capital gains tax on the appreciation, since qualified charities don’t pay capital gains tax on the sale. That’s real leverage compared to selling first and donating the after-tax proceeds.
Structure Matters for Larger Portfolios
Once your investable assets reach a meaningful size, entity structures like a holding company can change how gains are taxed and how exposed your assets are to lawsuits, separate from any tax benefit. This isn’t a small-portfolio strategy; the cost of setting up and maintaining the right structure only pays off once you have enough at stake to justify it.
The Common Thread
None of these strategies work in isolation, and none of them replace a plan. They work because they’re applied consistently, year after year, as part of a broader financial picture rather than a single trick pulled out during tax season. Talk with a CPA who understands your full financial picture, not just this year’s return, before making significant changes.
Educational only, not tax, legal, or investment advice. Check primary sources and speak with a qualified professional before making financial decisions.
