Smart tax strategies for investors

For investors, 2025 has already been an eventful year — trade disputes, tariffs and a sweeping new tax and budget bill have all grabbed investor attention. Investors who have been on edge about future tax policy finally have some clarity — the “one big beautiful bill” passed by Congress in July extends numerous tax breaks that would otherwise have expired this year.

Beyond what’s new in the bill, the sweeping legislation presents an opportunity for advisors to work with their clients on overall tax strategy and tax-aware wealth planning. In our newly published guide to Smart tax strategies for investors we offer ideas and strategies to help advisors have those conversations with clients.

To take a potentially overwhelming topic and boil it down to manageable insights for investors, the guide covers three broad categories: the basics of easy tax mitigation, taking a tax-aware approach to investing and gift and estate strategies that can help reduce taxes on generational transfers of wealth.

Covering the basics: Maximizing easy tax mitigation

In setting out tax strategies, don’t fall into the trap of focusing too heavily on today’s developments. For many investors, it’s worth taking a step back and looking at basic tax issues. Here’s a simple example: max out annual retirement contributions. The tax code offers very few “freebies,” but tax-advantaged retirement savings accounts are among them.

Maximizing contributions to tax-advantaged accounts such as 401(k)s, individual retirement accounts (IRAs) and Roth IRAs can help reduce taxable income. Plus, today’s contributions can help create tax-deferred or tax-free investment growth for the future. And that growth has the potential to help you preserve more wealth for retirement and provide greater flexibility in managing future tax liabilities.

A thoughtful approach to charitable giving is another way to manage income tax exposure. Don’t wait until the end of the year to make charitable giving decisions – a strategy that considers the timing and structure of charitable giving can help maximize tax efficiency.

Inside your portfolio: Taking a tax-aware approach to growing your assets

It’s common for investors to scrutinize the investment fees they pay. And while fees are important to monitor, it’s also true that for a majority of asset classes, taxes can be a bigger drag on investment results than fees.

There are numerous strategies you can use to manage tax costs in your investment portfolio by taking a tax-aware approach to growing assets. For example, exchange-traded funds (ETFs) offer several tax advantages that are not built into some other products. If you want to increase exposure to ETFs, tread carefully – selling long-held mutual fund investments to free up cash could lead to heavy capital gains taxes. Instead, consider putting “new money” to work in ETFs, for example, re-investing dividends earned from mutual funds into ETFs.

Beyond the basics: Estate strategies to reduce taxes

A third area where advisors can help clients manage tax exposure is in gift and estate planning, and in particular, reducing the future size of an estate through smart lifetime giving.

A popular vehicle for using annual gifts in estate planning is through a 529 college savings account. Giving to a 529 account can be a meaningful way to support the future education of children or grandchildren while also reducing future taxes on generational wealth transfers.

Maximize annual gifts to children and grandchildren. There are opportunities to give a great deal without facing gift taxes. The annual exclusion amount — which you can gift per person, per year, without incurring taxes and without eating into your lifetime exemption amount — is $19,000 per recipient, and $38,000 per recipient for married couples giving jointly. This applies to 529 contributions as well.

You can also give tax-free to help children or grandchildren pay medical bills or tuition. Such gifts are also excluded from the federal gift tax.

Lastly, and returning to the impact of the sweeping tax and budget bill, investors now have clarity on one of the bigger aspects of estate planning, the lifetime gift and estate tax exemption. For 2025, the lifetime exemption from that tax for individuals is $13.99 million and for married couples giving jointly, it is $27.98 million. Under the bill passed by Congress, those historically high exemptions are made permanent, rising to $15 million and $30 million in 2026.

Want a deeper dive on tax and wealth planning strategies? Download the entire Smart tax strategies for investors report.