Top 5 Tips For Managing Taxable Portfolios

Executive summary:

  • Tax season isn't the only time advisors should think about how taxes may impact their client portfolios
  • There are various strategies advisors can use year-round to ensure they are investing in a tax-efficient manner
  • Helping your clients maximize their after-tax wealth is an important element of the value you provide

Here we are again, the time of year that brings many of us relief: Tax Day 2023 has arrived and that means tax season is done and gone! Or does it? When it comes to taxes, is our work ever truly done?

Just because we've made it to Tax Day doesn't mean we shouldn't be thinking about how to minimize the tax pain for clients going forward. There are still plenty of tax-smart ideas that can serve you and your clients well throughout the year. It's not always easy but focusing on tax management can result in higher after-tax returns for tax-sensitive investors.

Here are five tips that you can rely on at any time that can help improve your clients' after-tax wealth.

1. While using a "buy and hold forever" strategy is a frequent desire, the reality is you are likely to have to sell some of your holdings at some point. Pay attention to holding periods.

At Russell Investments, we talk a lot about the importance of having a long-term perspective, and this is especially relevant when considering the holding period of a security. When it comes to a tax-managed approach, the difference between a long-term and a short-term capital gain is huge.

Today, for example, long-term capital gains are taxed at 23.8% at the marginal federal tax level. But short-term capital gains are taxed at a whopping 40.8%. That's a significant difference. The thing is, the impact of these different tax rates on your clients is easily in your control.