Investment-Related Tax Strategies: Reducing Capital Gains Tax before the New Year - Aligned Wealth Adv

As the year draws to a close, it's the perfect time to start thinking about your investment-related tax strategies. By strategically managing your investments, you can significantly reduce your capital gains tax liability before the new year. In this comprehensive guide, we'll explore some effective tax-saving strategies to help you make the most of your investments.

1. Tax-Loss Harvesting

Tax-loss harvesting is a smart strategy that involves selling investments that have experienced a loss to offset the gains from profitable investments. By doing this, you can reduce your overall capital gains tax burden. It's essential to review your portfolio and identify underperforming assets that you can sell strategically. Keep in mind that there are limitations to the amount of capital losses you can deduct in a given tax year, so consult with a tax professional for guidance.

2. Hold Investments for the Long Term

One of the most well-known tax strategies is holding your investments for the long term. If you hold your investments for over a year, you can take advantage of the lower long-term capital gains tax rates. Short-term gains are typically taxed at higher rates, sometimes as ordinary income. Hence, consider your investment horizon when making decisions. This approach not only minimizes your tax liability but also encourages a more stable and disciplined investment approach.

3. Utilize Tax-Advantaged Accounts

Contributing to tax-advantaged accounts like IRAs (Individual Retirement Accounts) and 401(k)s can provide significant tax benefits. These accounts offer tax deferrals or even tax-free growth, depending on the type. Maximize your contributions to reduce your current-year tax liabilities. For example, traditional IRAs and 401(k)s allow you to deduct your contributions from your taxable income, while Roth IRAs provide tax-free withdrawals in retirement. Take advantage of these accounts to optimize your tax strategy.

4. Tax-Efficient Investment Allocation

Consider the tax efficiency of your investment portfolio. Some investments are more tax-efficient than others. For instance, index funds and ETFs (Exchange-Traded Funds) tend to generate fewer capital gains compared to actively managed funds. Allocate your assets accordingly to minimize tax consequences. This strategy not only helps reduce capital gains tax but also lowers the administrative burden of managing taxes on your investments.

5. Charitable Donations

Donating appreciated investments to charitable organizations can be a win-win. Not only do you support a cause you care about, but you can also receive a tax deduction for the fair market value of the donated assets, effectively reducing your capital gains tax liability. This strategy is known as donating appreciated securities, and it not only reduces your tax burden but also allows you to make a positive impact on your community or a cause you're passionate about.

6. Gift or Inheritance Planning

If you plan to pass on assets to your heirs, consider the implications of the step-up in basis. In many cases, inherited assets receive a new cost basis at the time of inheritance, potentially reducing or eliminating the capital gains tax. This can be a valuable way to transfer assets to the next generation without saddling them with significant tax obligations. Proper estate planning and consultation with a financial advisor are key in this regard.

7. Consult a Tax Professional

Tax laws can be complex and change frequently. It's wise to consult a tax professional or financial advisor who can provide personalized guidance on the best investment-related tax strategies for your specific situation. They can help you navigate the intricacies of tax regulations, tailor a strategy to your financial goals, and ensure compliance with the current tax laws in your area.



Reducing your capital gains tax before the new year requires careful planning and execution of tax-efficient strategies. By employing the tactics mentioned above, you can optimize your investments and keep more of your hard-earned money. Make the most of the time left this year and embark on a tax-saving journey that will benefit your financial future. Remember, while these strategies can be highly effective, tax regulations vary by location and individual circumstances. Always seek professional advice to ensure your investments align with your financial goals and the current tax laws in your area.

Andrea Ward, CPA

Andrea has worked in the finance industry for nearly all of her professional life. Taking over the family business she continues to combine her tax and investment knowledge to leverage the investment power of money while reducing gains taxes paid to the IRS. She lives in the Fort Worth, Texas area, (although is happy to work with virtual clients all over the United States!) Andrea loves to travel and dabble in home decorating.

Matt Ward

Matt began helping clients in the insurance industry. However, he struggled with big business’s emphasis on selling rather than helping, so he came to work with the family business focusing on investment advisory. In his free time, he shreds the gnar on his snowboard and jams on drums and guitar (but not at the same time).