7 Steps That May Reduce Taxes on Your Income and Portfolio
By Brian Famigletti, Managing Director & Head of Marketing
1. Optimize Tax Deductions
To reduce taxes on income, begin with deductions.
Recent tax law changes included in the One Big Beautiful Bill Act (OBBBA) increased the standard deduction, while making tips, overtime, and car loans tax-deductible.
For those who itemize, higher state and local tax limits may apply. Charitable deduction rules have also changed. Contributions must exceed a percentage of adjusted gross income before becoming deductible.
2. Tax-Loss Harvesting
Tax-loss harvesting allows investors to offset realized capital gains by selling securities at a loss. This reduces federal capital gains taxes.
When using this mechanism, careful execution matters. Wash-sale rules, which prohibit investors from claiming a tax loss from the sale of an investment if they repurchase the same or a “substantially identical” security within a 61-day window, should be considered. This rule applies to stocks, bonds, options, and other contracts to acquire securities.
3. Carry Losses Forward
Capital losses that exceed gains can be carried forward. Investors may offset up to $3,000 of ordinary income annually.
Unused losses can continue into future years without expiration. This flexibility may help smooth taxable income over time.
4. Foreign Tax Credits
International investments may generate foreign withholding taxes. But U.S. taxpayers can generally claim a dollar-for-dollar Foreign Tax Credit (FTC) on Form 1116 to offset U.S. tax liability on that same foreign income. Alternatively, foreign taxes can be claimed as an itemized deduction.
Double taxation treaties, which allow withholding taxes on dividends, interest, and royalties, can also provide relief, but rules vary.
Coordination with a tax advisor is essential when holding international securities.
5. Prioritize Retirement Contributions
Tax-advantaged retirement accounts remain powerful tools. Traditional 401(k) contributions generally reduce current taxable income. Investment growth is tax-deferred.
Roth accounts offer a different benefit. Contributions are made after taxation, but qualified withdrawals may be tax-free. Contribution limits and income thresholds should be reviewed annually.
6. Maximize HSAs
Health Savings Accounts provide triple tax advantages. Contributions are generally deductible, earnings grow tax-free, and qualified withdrawals for medical expenses are also tax-free.
HSAs can serve as both health care and supplemental retirement planning tools. In addition, unused balances roll forward indefinitely.
7. Leverage Exemptions
Higher federal estate and gift tax exemptions can enable individuals to transfer significant wealth during life or at death without triggering federal transfer taxes.
Annual exclusion gifts also allow additional tax-efficient transfers. Strategic gifting may reduce future estate exposure while supporting family goals.
Reducing taxes on income requires coordination across investment, retirement, and estate planning decisions. No single strategy works for every household, as tax laws change and personal circumstances evolve.
A comprehensive review can help align tax strategies with long-term financial objectives. If you would like to review strategies to reduce taxes on income and optimize your portfolio structure, contact Griffin Asset Management today.
Source:
Morgan Stanley: 7 Steps That May Reduce Taxes on Your Income and Portfolio
