As the new year begins, take time to consider strategies and opportunities to incorporate throughout 2021 to best serve your overall tax situation.
Review your portfolio for tax efficiency.
1. Review the location of your investments for tax efficiency
- Do you have investments in taxable accounts that distribute nonqualified dividends or taxable interest?
- Do you have actively managed funds/accounts that are generating significant capital gains?
- Could these investments be held in tax-advantaged accounts instead?
2. Evaluate the tax impact of the investments you select for your taxable accounts.
- Determine whether taxable versus tax-exempt bonds or bond funds are better for your situation.
- Work with a financial advisor to identify investments that will distribute primarily qualified dividends. These dividends are taxed at a lower rate than nonqualified dividends.
- Mutual funds can distribute capital gains at year-end which may be difficult to predict. If this is a concern for you, review other investment options that could offer more control over the recognition of capital gains.
3. Your advisors have resources to assist you with your tax strategies.
- Schedule an appointment with your tax professional to discuss your situation and review your tax projection.
- Follow up with your financial advisor to evaluate your portfolio strategies and any investment changes that may help lessen your tax bill.
- If you’re nearing retirement, a financial advisor can also include income projections to help you understand the potential tax implications of your retirement income strategy.