How to make your portfolio more tax-efficient

Tax-efficient investing has a simple objective: to help you consider how taxes may affect what you keep from your investments. A tax-aware review can be applied at any time to identify opportunities to potentially improve portfolio tax efficiency. 

Tax-efficiency doesn’t mean overriding investment goals, it’s about finetuning fundamentals. How a portfolio is constructed, managed and adjusted over time: Where you hold investments, how and when you realize gains or losses and manage liquidity all influence after-tax outcomes.

Over time, tax-aware portfolio management (including tax-loss harvesting) and strategic planning actions such as charitable giving can help support specific longer-term investment objectives.

Your approach to managing taxes should be aligned with your goals, risk tolerance, and liquidity needs. Abrupt portfolio changes can create unintended tax consequences, so it’s important to assess each decision in context.

Answering the six questions below can help you identify where a tax-aware review may be worthwhile. Your J.P. Morgan team, in coordination with your tax advisors, can help you evaluate next steps and bring together the right specialists—across investments and wealth planning—to support an approach tailored to your circumstances.

Assess the tax efficiency of your portfolio

1. Have you incurred portfolio taxes you didn’t expect—or didn’t intentionally choose?

Taxes can be triggered by intentional portfolio decisions—such as selling assets to raise cash, rebalancing or adjusting your overall allocation (say, from balanced to conservative). They can also result from events you have little control over, such as mutual fund capital gain distributions.

Consider with your J.P. Morgan team: Are there ways to maintain similar market exposure while reducing unnecessary taxable events? In some cases, exchange-traded funds (ETFs) or other tax-aware vehicles may offer greater tax efficiency than with traditional mutual funds.

2. Do you invest in strategies that generate significant ordinary income or short-term gains?

Some investments generate income that may be taxed at higher ordinary income rates. Taxable bonds, for example, generally pay interest that’s taxed as ordinary income. Certain hedge funds, active trading strategies or higher-turnover investments also may generate short-term capital gains, which can be taxed less favorably than long-term capital gains. These strategies may still play an important role in your portfolio. The key question is whether they are being held and implemented in a tax-aware way.

Consider with your J.P. Morgan team: Could you achieve the same exposure with less tax drag? Municipal bonds can be more tax-efficient than taxable bonds if you hold the assets in a taxable account - comparisons are often best made using after-tax yield and expected total return – holding credit quality, duration, call features, and liquidity as close to equivalent as you can. Tax-managed equity strategies, such as direct indexing, may also help improve after-tax outcomes while preserving desired market exposure. In some cases, tax-deferred or tax-exempt structures may be appropriate for holding more tax-inefficient strategies.

3. Are your assets held in the appropriate type of account?

Where you hold your investments—in taxable, tax-deferred, or tax-exempt accounts—can meaningfully affect your after-tax outcomes. In general, taxable accounts may be better suited for more tax-efficient holdings, such as municipal bonds or lower-turnover equities; while less tax-efficient investments may belong in tax-advantaged accounts.

Consider with your J.P. Morgan team: Rather than making abrupt changes that could create taxable events, look for opportunities to improve asset location over time through new investments, reinvestments or portfolio adjustments. For example, income-generating investments may be better suited for tax-advantaged accounts—unless generating current cash flow is a priority. 

4. Are you balancing portfolio alignment with tax impact?

If you’re holding a legacy portfolio—especially one with embedded gains—getting to your desired long‑term allocation can be challenging, both from an implementation and an investment standpoint; for example: moving all at once may create unnecessary taxes, while waiting indefinitely can leave you misaligned with your goals.

Consider with your J.P. Morgan team : A tax‑aware transition can help reposition a portfolio toward its target allocation over time, balancing realized gains with risk exposure. Rather than forcing a single taxable event, a phased approach may allow you to manage the timing of realized gains across tax years, use available losses when they arise, and gradually align you to the desired allocation.

5. Are you holding a concentrated position because of potential tax consequences?

Concentrated positions can create meaningful portfolio risk—especially when the tax cost of selling makes diversification difficult. Often, we see clients holding on to low-basis concentrated stock positions from an IPO, equity compensation or significantly appreciated long-held investment because selling would create a tax bill.

Consider with your J.P. Morgan team: Depending on your circumstances, strategies, such as staged selling, exchange funds, tax-aware equity strategies, charitable giving, borrowing or hedging may help manage concentrated exposure, liquidity needs and tax impact over time.

6. Do you typically make charitable gifts in cash?

Many donors default to cash gifts because it feels simple and intuitive. If a meaningful portion of your wealth is held in taxable investments, how you give can be just as important as how much you give. Over time, a more tax-aware approach to philanthropy can help you support the causes you care about while potentially improving after-tax outcomes. If you regularly give in cash, you may be missing opportunities to give more tax-efficiently.

Consider with your J.P. Morgan team: If you own long-term appreciated securities, donating those assets directly—rather than selling them first and donating cash—may be more tax-efficient (subject to applicable rules and limitations). In many cases, you may be able to advance your philanthropic goals while potentially receiving an income tax deduction (subject to limitations) and avoiding tax on the unrealized gains.

Conclusion

A tax-aware approach is not a one-time decision—it’s an ongoing discipline. As markets, life circumstances and legislation evolve, periodic review can help keep your portfolio and wealth plan aligned with your goals.

Your J.P. Morgan team can work with you and your tax advisor(s) to help identify actions that may support after-tax outcomes based on your personal circumstances and wealth objectives.

Share your responses with your J.P. Morgan team to discuss whether a tax-aware portfolio review may be appropriate. To learn more about tax-aware investing: Read our tax-aware portfolio guide and explore our Tax Efficient Investing hub.

JPMorgan Chase & Co., its affiliates, and employees do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal and accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transaction.