Building wealth with intention: A tax-aware how-to guide

Approaching taxes strategically and intentionally has the potential to make a big difference in your overall investment returns no matter your goals or what you own. Without proper planning, layers of taxation can turn into a “silent fee” on wealth, as we’ve shown in the past. But a thoughtful strategy and the right partner may help strengthen after-tax outcomes over time by managing assets with an eye toward tax efficiency.

Here, we illustrate this point with a side by side comparison of two clients, Sofia and Hiro. They take similar starting points as high earners whose portfolios are composed of 55% public equities, 35% fixed income, and 10% alternatives such as private credit, private equity and hedge funds. 

While they start in nearly identical places, the advice they’re getting sets them on different paths. Hiro’s team manages his money, but isn’t planning for better after-tax outcomes. Meanwhile, Sofia’s team sees the potential benefits of long-term tax management. We’ll focus on the ways that distinguish these two approaches.

How to improve asset location

Hiro’s team prioritizes picking managers they have had success with, and assets are often placed based on those relationships. This is simple and convenient for Hiro and his family, but isn’t connected to a larger design. As a result, he owns hedge fund and private credit investments in taxable brokerage accounts.

Sofia’s team proactively consults with her to identify points of tax-friction and makes plans to minimize them. As part of her wealth plan, they continually show Sofia and her family ways to make their holdings more tax-efficient—not by choosing different investments, but by being more thoughtful about the account types holding those investments.

Sofia’s team places assets that are subject to ongoing tax drag¹ (for example, from ongoing taxable distributions or high turnover) in tax-free or tax-deferred accounts such as IRAs, that may allow them to compound on a tax-deferred or tax-advantaged basis for longer periods, subject to applicable rules. Her core investments—mostly comprised of low-turnover equities and municipal fixed income—are relatively tax-efficient, and therefore can be a fit for her taxable account.

After maximizing available retirement account opportunities, Sofia’s team also recommends evaluating other tax-advantaged vehicles—such as certain annuity and life insurance structures—where appropriate given her objectives.

Tax-loss harvesting

Hiro’s investments appreciate in value over time, but ongoing tax drag from his high-turnover equity portfolios becomes complicated. His tax bills are also highly variable from year to year, which pushes him to hold more cash. He finds this frustrating at times, but addressing it is difficult, as that would require taking steps that would trigger more tax bills.

Meanwhile, Sofia’s team begins using automated tax-loss harvesting techniques to carefully realize some investment losses that may offset capital gains elsewhere in the portfolio, and she also periodically contributes cash to her tax-loss harvesting strategy in order to refresh the cost basis and extend her ability to harvest additional losses. 

Their use of tax-loss harvesting also allows them to use market downturns in a way that may improve after-tax outcomes by deferring or reducing current capital gains tax exposure instead of simply waiting for the recovery.

Gifting

Hiro and his family often give gifts to loved ones at significant life events (graduations, marriages, birthdays). They also support causes that are important to them, but tend to do so irregularly. For reasons of convenience, they often make these gifts by check or in cash.

Sofia’s family and her team are more intentional, using her annual gift tax exclusion (up to $19,000 per donee, per donor, in 2026) to make recurring gifts to her other family members, in cash or in-kind. Transferring assets that have the potential to significantly appreciate in value removes future appreciation from Sofia’s estate and makes them available to other family members. By utilizing the annual gift tax exclusion and, where appropriate, transferring illiquid assets that may qualify for valuation discounts because of lack of control or marketability, Sofia may be able to reduce her potential transfer tax exposure.²

Her team also incorporates tax-efficient charitable strategies, such as donating appreciated stock held long-term and, when it makes sense, using a donor-advised fund (DAF) to “bunch” charitable deductions into a single year to exceed the 0.5% adjusted gross income (AGI) floor on charitable contributions. This mitigates Sofia’s income tax liability. A contribution to a DAF may be eligible for an itemized charitable deduction in the year of contribution (subject to adjusted gross income limitations and other applicable rules), while grants from the DAF to qualified charities can be recommended later. 

Donating significantly appreciated assets held long-term is typically more tax-efficient than giving cash because Sofia can avoid capital gains tax on those assets, while potentially receiving a fair market value charitable deduction (subject to adjusted gross income and other limitations).³

By pairing her charitable goals with portfolio rebalancing, Sofia is able to reduce tax friction while maximizing her charitable impact.

Outcome

Both Hiro and Sofia work with strong teams that try to develop strategies that will meet their goals, differences emerge over time. However, Sofia’s partners go beyond recommending what to buy and sell—they help her build a holistic wealth plan designed  to improve after-tax outcomes over time and support her long-term goals.

We can help

To learn more about how you can take a tax-efficient approach to investing across your portfolio, contact your J.P. Morgan team. Your J.P. Morgan team can work with you and your tax advisor to help identify tax-planning actions that may be appropriate your personal circumstances and long-term financial goals.

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.​