When evaluating your investments, it is easy to focus on one number: how much your portfolio has grown. But another number matters just as much: how much of that growth you actually keep after taxes.
Your investment choices, account types, and timing of transactions can all affect your tax bill. With the end of 2026 approaching, now is a good time to review your portfolio and identify opportunities to improve its tax efficiency before December 31.
Here are five areas worth reviewing:
1. Understand the Tax Impact of Investment Gains
In a taxable brokerage account, selling an investment for more than you paid generally creates a capital gain. Gains on investments held for one year or less are typically taxed at ordinary income tax rates, while long-term gains may qualify for lower federal tax rates.
For example, if you purchased an investment for $10,000 and sold it for $15,000, you would generally realize a $5,000 capital gain.
Before selling investments, consider how the resulting gain could affect your overall tax situation. In some cases, holding an investment longer or coordinating sales with other financial decisions may improve your after-tax outcome.
2. Consider Tax-Loss Harvesting
Tax-loss harvesting involves selling an investment at a loss to offset capital gains elsewhere in your taxable portfolio.
For example, if you realized a $10,000 capital gain earlier in the year and sold another investment at a $4,000 loss, that loss could reduce your net capital gains to $6,000, assuming no other relevant transactions.
There are important rules to understand:
Capital losses generally offset capital gains, and certain excess losses can offset up to $3,000 of other income annually.
The wash-sale rule can disallow a loss if you purchase the same or a substantially identical investment within 30 days before or after the sale.
Investment decisions should still align with your long-term goals.
Tax-loss harvesting is not right for everyone, but it may be worth reviewing before year-end.
3. Review Which Accounts Hold Your Investments
The type of account holding an investment can influence when and how you pay taxes.
Taxable brokerage accounts: Interest, dividends, and realized capital gains may create annual tax liabilities.
Traditional IRAs and 401(k)s: Investments generally grow tax-deferred, with withdrawals typically taxed as ordinary income.
Roth IRAs and Roth 401(k)s: Qualified withdrawals are generally tax-free.
Asset location, or deciding which investments belong in which accounts, can help improve tax efficiency across your overall portfolio.
For example, investments that generate substantial taxable interest may be candidates for tax-deferred accounts, while more tax-efficient investments may be appropriate for taxable accounts. The best approach depends on your individual circumstances and investment options.
4. Watch for Mutual Fund Capital Gains Distributions
Mutual funds may distribute capital gains generated when the fund sells investments within its portfolio. If you hold the fund in a taxable account, these distributions can create a tax liability even if you did not sell any shares yourself.
Some funds announce estimated distributions toward the end of the year. Reviewing these estimates can help you understand potential tax consequences before making investment changes.
A distribution alone is not necessarily a reason to sell or avoid a fund. Consider its overall role in your portfolio, investment strategy, and costs.
5. Coordinate Investments With Your Broader Tax Plan
Investment decisions can affect more than your portfolio. They may also influence retirement income, charitable giving, and your overall tax liability.
Consider these opportunities:
Realizing gains strategically: A lower-income year may present an opportunity to realize certain long-term gains at a lower tax rate.
Donating appreciated investments: Giving eligible appreciated securities directly to a qualified charity may help avoid capital gains tax and potentially qualify for a charitable deduction, subject to applicable rules.
Planning retirement withdrawals: Coordinating IRA distributions, Social Security, and taxable investment sales may improve tax efficiency.
Evaluating Roth conversions: Converting traditional IRA assets to a Roth IRA creates taxable income but may provide long-term benefits, depending on your circumstances.
These decisions are most effective when evaluated together rather than in isolation.
Your Year-End Investment Tax Checklist:
Before December 31, consider reviewing these items with your financial advisor and tax professional:
Review realized capital gains and losses.
Identify potential tax-loss harvesting opportunities.
Check for upcoming mutual fund distributions.
Review which investments are held in taxable and retirement accounts.
Consider charitable gifts of appreciated investments.
Evaluate planned retirement withdrawals or Roth conversions.
Not every strategy will apply to every investor, but a year-end review can help identify opportunities you might otherwise miss.
The Bottom Line
Investment performance matters, but taxes can influence how much of your returns you ultimately keep.
Reviewing your portfolio before year-end may reveal opportunities to reduce unnecessary tax costs and better coordinate your investments with your financial goals.
At NextGen Wealth Services, we believe investment decisions should be part of a broader financial plan that considers taxes, retirement, and your long-term priorities.
Ready to review your financial plan?
Connect with the NextGen team to start the conversation.
This article is for educational purposes only and does not constitute individualized investment, tax, or legal advice. Consult a qualified tax professional regarding your specific circumstances before implementing a tax strategy.