Why Tax Awareness Belongs in Investment Decisions All Year

An investment decision can look attractive before taxes and less attractive once the tax consequences are considered. Selling appreciated shares, changing managers, or receiving fund distributions can affect what you ultimately keep. Those consequences deserve attention before a transaction is made.

In his article on proactive portfolio tax management, Erik Preus argues that tax awareness should be part of investment design from the beginning. For investors, that means asking how a proposed change fits the whole financial picture rather than waiting until tax preparation to discover its impact.

Look beyond a single account

Your investments may be spread across several institutions or managed by different professionals. Each account can look reasonable on its own while the combined activity creates unexpected gains, overlapping holdings, or transactions that work against one another.

A useful review brings together account statements, cost-basis information, realized gains and losses, and anticipated cash needs. That information helps your financial planner and tax professional discuss the consequences of potential changes with fewer gaps.

Consider the cost of making a change

Selling an investment can realize a gain or loss. Its holding period generally determines whether that gain or loss is short-term or long-term, which can affect tax treatment. Replacing an entire portfolio immediately may therefore carry a different tax cost from making changes gradually.

Tax awareness also requires judgment about risk. Holding an excessively concentrated position simply to postpone a tax bill can leave too much of your financial future dependent on one investment. The appropriate decision weighs tax consequences alongside diversification, liquidity, and your objectives.

Understand what loss harvesting can and cannot do

Tax-loss harvesting involves realizing investment losses that may offset capital gains under applicable rules. It is one tool within a broader discussion that can also include gain realization, fund distributions, and the timing of portfolio changes.

The wash-sale rules can disallow a loss deduction when substantially identical securities are acquired within 30 days before or after a loss sale. A transaction should therefore be reviewed in context, including relevant purchases in other accounts. Selling solely to capture a loss can also create costs or alter your investment exposure.

Coordinate before acting

If you expect a major sale, charitable gift, or portfolio transition, raise it with your financial planner and tax professional early. Ask what gains have already been realized, what distributions may be coming, and how the proposed transaction affects your broader plan. Waiting until December may leave fewer choices.

Specialized approaches such as direct indexing or tax overlays may be appropriate for some investors, but they involve fees and operational complexity. Their value depends on the investor’s circumstances; a strategy’s tax label does not establish that it is the best choice.

CPA Allies encourages clients to connect investment decisions with their broader financial goals and to involve their tax professionals where tax consequences require analysis. The objective is an informed decision that accounts for both the investment tradeoffs and the potential tax impact.

This article provides general information only. CPA Allies does not provide tax advice. It is not a recommendation to buy, sell, harvest losses, or implement a particular strategy. Consult your CPA, enrolled agent, or other qualified tax professional before acting. No investment return or tax savings are guaranteed.

Source acknowledgment: Erik Preus, CFA, “A Proactive Portfolio For Tax Management,” Financial Advisor Magazine, July/August 2026, pp. 47–48. Additional references: IRS Publication 550, https://www.irs.gov/publications/p550; SEC Investor.gov, “Wash Sales,” https://www.investor.gov/introduction-investing/investing-basics/glossary/wash-sales.