Tax-Efficient Investing: Why Coordinating Tax and Investment Decisions Matters More Than Headline Returns
Benjamin Franklin famously said, “In this world, nothing is certain except death and taxes.”[1]
At SJS, we accept his premise about death. But when it comes to taxes, thoughtful planning can influence both how much you pay and when you pay it.
Investors naturally focus on returns. But for taxable investors, an equally important question is: How much of my return do I actually get to keep, use, or compound?
An investment strategy with an attractive headline return can still produce a disappointing outcome if unnecessary taxes erode those gains. Many advisors fail to pay attention to taxes when making or not making portfolio decisions on behalf of their clients. That is why we believe tax planning and investment management should be coordinated together rather than treated as an afterthought.
Here are few ways we can help clients invest more tax efficiently through MarketPlus® Investing:
Tax-Loss Harvesting – When markets decline, we may sell investments with unrealized losses and replace them with similar investments to maintain market exposure. The realized losses can potentially offset realized capital gains today or in future years.[2] Done properly, tax-loss harvesting can turn market volatility into a tax-planning opportunity without abandoning a long-term investment strategy.
Long/Short Tax-Managed Strategies –For some investors with significant taxable assets, concentrated positions, other tax-inefficient investments that they want to keep, or an upcoming liquidity event, long/short strategies can create additional opportunities to defer gains and realize losses while maintaining desired investment exposure. While the opportunity is great, these strategies are complex and come with additional investment, implementation, cost, and tax considerations. Tax management should be a proactive and ongoing part of portfolio design, not simply a year-end exercise.
Asset Location – Asset allocation determines what you own. Asset location determines where you own it.
Tax-inefficient investments may be better suited for tax-deferred accounts such as IRAs or 401(k)s, or tax-exempt Roth accounts. In taxable accounts such as brokerage accounts, we strive to hold more tax-efficient investments.
Rather than managing every account independently, we prefer to look at all of the accounts in the household as one coordinated portfolio.
Municipal Bonds – For investors in higher tax brackets, municipal bonds can sometimes provide more attractive after-tax income than taxable bonds. The important comparison is not simply which bond offers the higher stated yield. It is which one leaves the investor with more income after taxes.
Tax-Aware Real Estate – Certain real estate investments may benefit from depreciation and other tax characteristics that can shield a portion of current income and allow more capital to remain invested.
Tax benefits alone, however, never make an investment attractive. Risk, fees, liquidity, leverage, valuation, and the quality of the underlying investment still matter.
Designing Family Wealth – Tax planning also matters when assets pass from one generation to the next.
Under current tax law, many inherited assets receive an adjustment in cost basis at death.[3] For families with highly appreciated assets, the timing and method of transferring wealth can therefore have significant tax consequences.
The question is not simply who gets an asset, but also when and how they receive it.
Estate Tax Planning – Families with substantial wealth may also face federal and / or state estate taxes.[4]
Working alongside our clients' estate planning attorneys and accountants, we can help evaluate strategies designed to transfer wealth more efficiently to children, grandchildren, charities, and other beneficiaries.
The goal is not simply minimizing taxes. It is structuring wealth around the people and purposes that matter most to you.
Tax Aware, Not Tax Driven
Tax efficiency is an important part of MarketPlus® Investing. Depending on your goals and circumstances, strategies include thoughtful asset location, tax-loss harvesting, tax-aware trading and withdrawals, municipal bonds, alternative investments, gifting, and long/short separately managed accounts.
But there is an important distinction between being tax aware and being tax driven.
We do not believe in making a poor investment decision simply to avoid paying taxes. Sometimes, realizing a gain is the right decision because an investment no longer belongs in the portfolio, risk has become too concentrated, or a your goals have changed.
As the saying goes, don't let the tax tail wag the dog.
At SJS, we want your investment strategy, financial plan, estate plan, and tax strategy working together. Because ultimately, investing is not about achieving the highest number on an account’s performance report. It is about keeping more of your wealth, empowering you to build a better life!
Schedule a meeting with one of our advisors to learn how thoughtful, tax-aware investing can help you keep more of your wealth and make the most of your financial plan.
Important Disclosure Information & Sources:
[1] Benjamin Franklin’s Last Great Quote and the Constitution.” National Constitution Center, November 13, 2023, constitutioncenter.org.
[2] “Topic No. 409, Capital Gains and Losses.” Internal Revenue Service, irs.gov.
[3] Publication 551, Basis of Assets. Internal Revenue Service, December 2025, irs.gov.
[4] “Estate Tax.” Internal Revenue Service, irs.gov.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market. MarketPlus® Investing models consist of institutional quality registered investment companies. Investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.
Advisory services are provided by SJS Investment Services, a registered investment advisor (RIA) with the SEC. Registration does not imply a certain level of skill or training. SJS Investment Services does not provide legal or tax advice. Please consult your legal or tax professionals for specific advice.
Statements contained in this article that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.