Tax Efficient Investing

Four Tips to Tax-Efficient Investing

Is your portfolio tax-efficient? Here are four ways tax-smart investing can potentially help you keep more of what you earn.

1.   Tax-Managed Mutual Funds. Although mutual funds are generally not known for their tax-efficiency, “tax-managed” mutual funds seek to limit turnover and distributions and use other strategies to minimize tax implications.

2.   Separate Accounts. Through separate accounts – managed investments that buy individual securities with pooled money – a manager can avoid pre-existing gains/losses and short-term capital gains, strategically harvest losses to offset gains and identify lots for sale.

3.   Tax-Deferred Accounts. The table below summarizes considerations of taxable and tax-deferred accounts in seeking to improve your portfolio’s tax-efficiency:

4.   Knowing When and How to Sell.

•    Holding investments for more than one year can help you take advantage of the lower long-term capital gains tax rate when you sell, though there may be investment risks to consider.

•    Buying the same security at different times and prices (“lots”) gives you control over any gains/losses you realize.

•    Capital losses can be used to offset gains dollar-for-dollar plus up to $3,000 of ordinary income each year, though realized losses in tax-deferred accounts cannot offset gains in taxable accounts.

•    Losses from wash sales (i.e., when you sell a security at a loss but repurchase the same or similar security within 30 days before or after the sale) cannot offset gains or income in the current tax year – the loss may be deferred until the replacement property is sold or permanently disallowed.

Because of market fluctuations, your portfolio’s performance may vary. However, tax-smart strategies may help you gain greater control over the taxes you pay and keep more of what you earn.

Investors should consider the investment objectives, risk, charges and expenses of mutual funds carefully before investing. This and other information is found in the prospectus. For a prospectus, contact your Baird Financial Advisor. Please read the prospectus carefully before investing.

There are many differences between separately managed accounts and mutual funds, all of which should be considered very carefully before investing. There are fees and charges associated with separately managed accounts, and not all the accounts are suitable for all investors.

*Robert W. Baird & Co. does not provide tax advice. Please consult with your tax professional before implementing any strategies.

Article provided by Robert W. Baird & Co. with the authorization of its author for Evan Guido, Vice President, Financial Advisor at the Sarasota office of Robert W. Baird & Co., member SIPC. The opinions expressed are subject to change, are not a complete analysis of every material fact and the information is not guaranteed to be accurate.

Evan R. Guido
Vice President of
Private Wealth Management
One Sarasota Tower, Suite 806
Two North Tamiami Trail
Sarasota, FL  34236-4702
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