Most people think about income when they think about wealth, but true financial security often comes from how investments are structured and managed over time. Taxes are one of the biggest factors that can eat into growth if they aren't planned for carefully. With the right tax strategies, you can reduce unnecessary tax costs, strengthen your portfolio, and preserve more of your wealth for the future.
Asset Location: Putting Investments in the Right Place
The type of account you use can matter as much as the investment itself. Income-heavy holdings, like taxable bonds or real estate investment trusts, often work better inside tax-deferred or Roth accounts, where yearly income isn't taxed right away. On the other hand, tax-efficient assets such as index funds and exchange-traded funds are often best kept in regular taxable accounts. By matching the right investments with the right account, you reduce ongoing tax drag and help your portfolio grow faster.
Capital Gains Harvesting: Locking In Lower Rates
Long-term capital gains are taxed at different rates depending on your income. If you sell investments in a year when your income is lower, you may qualify for the 0% or reduced long-term gains rate. Harvesting gains during these windows lets you lock in growth while paying less in tax. Timing is key. A CPA can run tax projections to help you decide when to realize gains without accidentally moving into a higher tax bracket or triggering surtaxes.
Loss Harvesting: Turning Setbacks Into Savings
Not every investment performs as expected, but even losses can be useful. By selling an investment at a loss, you can offset gains elsewhere in your portfolio and, in some cases, reduce ordinary income by up to $3,000 per year. Unused losses carry forward to future years, giving you flexibility. Just remember the wash-sale rule, which disallows a loss if you buy the same or a nearly identical investment within 30 days before or after the sale. Careful recordkeeping and coordination make this strategy effective.
Generational Wealth and Legacy Planning
Thoughtful tax planning protects today's income while building a foundation to support your family for years to come. Many inherited assets qualify for a step-up in basis, which means heirs may not owe tax on gains that built up during your lifetime. Retirement accounts, however, follow different rules. Most non-spouse beneficiaries must empty inherited IRAs within 10 years, so distribution timing becomes essential.
Charitable tax strategies can also play a role in legacy planning. Tools like charitable remainder trusts or donor-advised funds allow you to give to causes you care about while reducing taxes and supporting long-term goals. Annual gift exclusions, set at $19,000 per recipient in 2025, create another way to transfer wealth to the next generation without immediate tax consequences.
Key Questions to Ask a CPA
- Which investments should I hold in taxable versus retirement accounts?
- When is the right time to harvest capital gains?
- How can I use losses to lower my taxable income?
- What are the best ways to reduce the tax impact for my heirs?
- How do charitable tools fit into my overall plan?
FAQs
Do these strategies work for everyone?
Not always. They're most effective for individuals with multiple accounts, taxable investments, or significant long-term goals.
Can I harvest both gains and losses in the same year?
Yes, but coordination matters. The order of transactions and timing can affect your total liability.
Do I need both a CPA and a financial advisor?
Ideally, yes. Advisors help build portfolios, while CPAs ensure those portfolios are tax-efficient. Together, they give you the best of both worlds.
Plan Today, Build for Tomorrow
Earning more is only one aspect of building wealth; keeping more of what you earn is another vital consideration. By paying attention to taxes along the way, you give your portfolio more room to grow and create stronger opportunities for the next generation. At Myrick CPA, we work with clients nationwide to align tax planning with investment and wealth goals.
If you want to feel confident that you have a sound tax strategy in place, and that your investments are structured wisely, schedule a consultation with Myrick. Keep in mind that a strong plan for today results in financial security for tomorrow.
