As tax practicioners we do many tax returns where there are opportunities to save tax money.  We talk about these opportunities with clients and just like everything else time slips by and they forget to follow up and then we repeat the process the following year.  Once you lose of your investments to taxes you can never recover them.  You also lose the compounding effect that you would have benefited from by keeping those funds in your account and consequently will experience less overall growth in your portfolio. 

The types of accounts we are referring to are those investments held outside of your retirement accounts (not your IRAs, 401ks, 403bs).  Some investments are better suited to be held in retirement accounts instead of regular investment accounts.  You really want to hold tax-efficient investments in your non-retirement accounts because these types of investments can often have dividend and capital gains distributions that must be included on your tax return.  It is very common to see distributions from tax-inefficient mutual funds where the shareowners have to report capital gains distributions (income on their tax return that is taxable) even though the fund could be down and maybe down a lot.  There were a number of popular funds that saw this happen in 2008 when the market dropped significantly.  Talk about kicking someone when they are down…your account is down 20% and you have to report and pay taxes on distributions from your investments.

The likelihood of these types of situations occurring can be reduced by using tax-efficient investments.  We strongly advise you give some thought to this.  Also, if you are a high tax bracket investor it could make sense for to be investing your bond allocations in municipal bonds.  The interest from these types of bonds are usually tax free at the federal and state levels (and sometimes at the local level as well).

If you are unsure about whether or not you are affected by tax-inefficient investments, give us a call and we would be happy to review your tax return with you.  Losing your hard earned money to taxes unnecessarily should not happen.  This is one of the most fundamental things that should be done.   A word of caution…just because you have a financial advisor does not mean that your investments are as tax-efficient as they can be.

Let us look at your return and we can show you where improvements can be made. Click contact us above and let us know how we can help.




The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security. 

Registered Representative, Securities offered through Cambridge Investment Research, Inc., A Broker/Dealer, Member FINRA/SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor.  Heisler Hughes Financial Group, LLC and Cambridge are not affiliated.

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