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Four Strategies to Reduce a Portfolio's "Tax Footprint"
Here are four ways to reduce your portfolio's tax footprint.
Portfolio managers may employ several strategies to help reduce a portfolio's tax footprint and enhance after-tax returns, such as:
Tax lot matching – The portfolio may include shares of a security that were purchased at different times. When selling shares, the portfolio manager will choose which "lot" of shares to sell based on what will be most tax-efficient for the portfolio.
Wash sale avoidance – The "wash sale rule" prohibits an investor from claiming a loss from selling a security if he or she buys the security back within 30 days of the sale. Portfolio managers may delay purchases to avoid violating this rule.
Short-term gains deferral – Short-term gains are taxed at higher rates than long-term gains. Depending on a variety of factors, a portfolio manager may determine it's appropriate to defer a sale to reduce the tax impact.
Strategic tax loss harvesting – When markets trend upward, some stocks go down in value. These situations present opportunities to realize losses that can be used to offset capital gains.
Of course, tax management is just one consideration when managing investments. Portfolio managers will balance decisions about using these techniques with other considerations, such as a portfolio's objective.
Edward Jones Advisory Solutions® UMA Models employ these techniques to gain tax efficiency. Learn more about this solution, contact Mark Grooters (616) 281-9026 or mark.grooters@
Edward Jones: Mark Grooters - Financial Advisor