1. TurboTax /
  2. Tax Calculators & Tips /
  3. Tax Tips Guides & Videos /
  4. Investments and Taxes /
  5. Tax Time Gains and Losses: Calculating Your Investment Portfolio Results

Tax Time Gains and Losses: Calculating Your Investment Portfolio Results

Updated for Tax Year 2017


OVERVIEW

Every investor's goal is the same, to make money. But a dollar earned in one investor's portfolio is not necessarily the same as a dollar earned in another's. That's because each portfolio might include a unique mix of investments and also might spread those investments among different types of accounts. When it comes to minimizing the tax bite, there may be as many different strategies as there are portfolios, but you have several ways to manage your portfolio to reduce your overall obligation.


Asset location, location, location

Business investor completing paperwork

Investors hear plenty about asset allocation—what percentage of their investments should be in stocks, bonds, real estate or other asset classes. But asset location—the type of account in which you hold an asset—can be even more important when it comes to taxes:

  • Since ordinary income is generally taxed at higher rates than capital gains, an investment that earns ordinary income is best kept in a tax-deferred account such as an IRA.
  • Investments that produce primarily capital gains would be better in a taxable account, since you can usually put off tax consequences until you sell the investment and pay a lower capital gains tax rate than if it was taxed as ordinary income.

"Harvesting" your tax losses

"Tax-loss harvesting" is the idea of using investment losses to offset investment gains in a given year to reduce your overall tax burden.

  • For example, say you own some stock that has lost a huge amount of its value, and you don't expect the price to recover.
  • Rather than just sell it now to free up cash and "eat" the loss, you can hold onto the stock until you sell another investment that produces a taxable gain.

"If you know you have to take a loss, and you have some gains taxes coming your way, you can do it at the same time" and therefore cut your taxes, says Trevor Ewen, a writer on personal finance issues at Pearoftheweek.com. However, he warns that you shouldn't sell investments that are simply undergoing a cyclical down market to create losses to "harvest." Doing so would be buying high and selling low—the exact opposite of smart investing.

Minimizing asset turnover

Every time you sell an investment asset held outside of a tax-advantaged account such as a 401(k), you incur either a capital gain or a capital loss. That's why financial advisors say one of the easiest ways to minimize your tax exposure is to simply avoid selling unless you absolutely have to.

"Don't do a lot of 'sell' transactions," Ewen says. "Try to keep it minimal...keep the effectivity of your money going as long as you can."

Smart planning prevents tax-time scrambling

Ultimately, it’s best to think ahead—at the time you make the investments—about the tax effects of returns in your investment portfolio rather than at tax time. To capitalize on asset location and tax diversification, you must have your investments in the right accounts.

Minimizing asset turnover means committing to invest for the long term. Even loss harvesting should be part of an overall strategy, not a snap decision to sell something at a loss—and forfeit any future rebound—simply to reduce taxes by a small amount.

Got investments?

From stocks and bonds to rental income, TurboTax Premier helps you get your taxes done right

For only $79.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

* Important Offer Details and Disclosures
  • TURBOTAX ONLINE/MOBILE

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Absolute Zero $0 federal (forms 1040EZ/1040A) + $0 state limited time offer only available with TurboTax Free Edition; offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase. Special discount offers may not be valid for mobile in-app purchases.
  • QuickBooks Self-Employed Offer with TurboTax Self-Employed and TurboTax Live for Extension Filers: To receive your complimentary subscription to QuickBooks Self-Employed through 10/31/19, you must pay for your 2017 TurboTax Self-Employed or TurboTax Live return between 4/18/18 and 10/15/18 and sign-in and access your QuickBooks Self-Employed account via mobile app or at https://selfemployed.intuit.com/turbotax at least twice by 12/31/18. You will have the option of renewing your QuickBooks Self-Employed subscription by 10/31/19 for another year at the then-current subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section. See QuickBooks.com for price comparison. Offer not valid for existing QuickBooks Self-Employed subscribers already on a paid subscription.
  • Pays for itself (TurboTax Self-Employed): Estimates based on deductible business expenses calculated at the self-employment tax income rate (15.3%) for tax year 2017. Actual results will vary based on your tax situation.
  • Anytime, anywhere: Internet access required; standard data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Help and Support: Access to a TurboTax specialist is included with TurboTax Deluxe, Premier, Self-Employed and TurboTax Live; not included with Free Edition (but is available as an upgrade). TurboTax specialists are available to provide general customer help and support using the TurboTax product. SmartLook on-screen help is available on a PC, laptop or the TurboTax mobile app. Service, area of expertise, experience levels, wait times, hours of operation and availability vary, and are subject to restriction and change without notice.
  • Tax Advice, Expert Review and TurboTax Live: Access to tax advice and Expert Review (the ability to have a Tax Expert review and/or sign your tax return) is included with TurboTax Live or as an upgrade from another version, and available through October 15, 2018. These services are provided only by credentialed CPAs, EAs or tax attorneys. State tax advice is free. Some tax topics or situations may not be included as part of this service, which shall be determined in the tax expert’s sole discretion. In the event your return is reviewed by a tax expert and requires a significant level of tax advice or actual preparation, the tax expert may be required to sign your return as the preparer at which point they will assume primary responsibility for the preparation of your return. Expert Review [and TurboTax Live] not available on the TurboTax mobile app or when using a web browser on your mobile phone. On-screen help is available on a PC, laptop or the TurboTax mobile app. Service, area of expertise, experience levels, wait times, hours of operation and availability vary, and are subject to restriction and change without notice.
  • Tax Return Access and My Docs features: Included with TurboTax Deluxe, Premier, Self-Employed, TurboTax Live or with PLUS benefits. Access to all tax-related documents we have on file for you is available through 10/31/2019. Terms and conditions may vary and are subject to change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2016 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • #1 rated online tax prep provider: Based on independent comparison of the best online tax software by TopTenReviews.com March 13, 2017.
  • Get tips based on your tax and credit data to help get you to where you want to be: Tax and credit data accessed upon your consent.
  • TURBOTAX CD/DOWNLOAD SOFTWARE

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: A $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2016 TurboTax products.
  • Data Import: Imports financial data from participating companies; may require a free Intuit online account. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2016 and higher) and QuickBooks Desktop (2012 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.