It’s not surprising that investment returns can be affected by taxes, and it can be equally challenging to know how to best manage those effects. The Investors Centre, active tax management can be an important part of a comprehensive investing strategy. Whether it’s making sure contributions to retirement accounts are maximizing the potential of your tax situation, or leveraging a constellation of “loopholes” to minimize tax liability, there are many opportunities for investors to reduce their tax burden.

The first step in effective tax planning is maximizing tax credits and deductions, which directly reduce an individual’s overall tax liability. Tax-efficient investments are another important tool to consider, including index funds and ETFs that have a lower turnover rate and fewer trades, which can lead to fewer capital gains distributions. Additionally, growth stocks that don’t pay a dividend can be held in taxable accounts and potentially offer higher after-tax returns than other actively managed funds.

Tax Planning Tips for Smart Investors

Finally, if you have investment losses that outweigh your capital gains each year (called tax-loss harvesting), it may be possible to offset up to $3,000 in federal income tax liabilities per year, with additional carry forward losses available. However, it’s important to note that this strategy has specific rules and regulations—such as the wash-sale rule—that must be considered and understood.

Managing your taxes should be an ongoing endeavor, and the best way to save on taxes is to implement proactive strategies throughout the year. Whether it’s taking advantage of the many benefits of tax-efficient investments or planning for RMDs and Roth IRA conversions at year-end, working with an investment advisor who can apply a range of effective strategies is essential for your financial success.