Tax planning is "built in" when tax is considered at the moment an investment decision is made: which account holds an asset, which shares get sold, when gains are taken, and how gifts are funded. It is "bolted on" when the portfolio is managed first and the tax consequences are found later, on the return. The built-in approach does not depend on exotic strategies. It depends on the same people seeing both sides of the decision before it is made.
Why are investment decisions also tax decisions?
Almost every move in a taxable portfolio has a tax result. Rebalancing sells something, and selling creates a gain or loss. A fund's internal trading creates distributions you owe tax on. Where an asset sits, taxable account, IRA or Roth, decides how its income is taxed for decades. None of that is visible in a performance report, which is one reason it gets overlooked.
Returns are reported before tax. Families live on what is left after it.
What does "built in" look like in practice?
Asset location
Different investments are taxed differently. Interest from bonds is taxed as ordinary income. Qualified dividends and long-term gains on stocks get lower rates. Holdings in a Roth grow tax-free. Putting the right assets in the right accounts, while keeping the overall mix the plan calls for, is a quiet decision that compounds. The same investments, arranged differently, can leave a family with different after-tax wealth over a long horizon.
Harvesting losses, and minding the wash sale rule
When an investment in a taxable account falls below what you paid, selling it can realize a loss that offsets gains, and up to $3,000 a year of ordinary income, with the rest carried forward. The proceeds can be reinvested in something similar so the portfolio stays on plan. The wash sale rule disallows the loss if you buy the same or a substantially identical security within 30 days before or after the sale, including in an IRA. Harvesting works only if someone is watching for the chance and the rule at the same time.
Choosing which shares to sell
If you bought the same holding at different times and prices, you can usually choose which lots to sell. Selling the highest-cost shares first, or the ones held more than a year, can change the tax on the same trade substantially. Default settings at many custodians do not do this for you.
A gain budget for the year
Rather than rebalancing whenever markets move, some families set a rough amount of gain they are willing to realize in a year, based on their bracket and what else is on the return. In a year with a large bonus or business sale, that budget may be zero. In a low-income year, it may be larger, since long-term gains can fall in the 0% federal bracket for some households.
Giving appreciated shares
Donating shares held more than a year directly to a charity or donor-advised fund generally gives a deduction for their market value and avoids tax on the gain. Writing a check from cash and keeping the appreciated shares does the reverse. Starting in 2026, the July 2025 federal tax law adds a floor before itemized charitable gifts count: only gifts above 0.5% of the contribution base, which for most people is adjusted gross income, are deductible (Internal Revenue Code section 170(b)(1)(I)). For people in the 37% bracket, it also reduces itemized deductions by 2/37, which can cap their value at 35 cents per dollar (section 68). Both rules come from Public Law 119-21 (July 2025), and they make timing and bunching gifts more important.
Roth conversions and withdrawals
Moving money from pre-tax accounts to Roth accounts in low-income years, and choosing which account funds spending in retirement, are tax decisions dressed as investment decisions. We cover them in the Roth conversion window and which account to draw from first.
The estate view
Under current law, heirs generally receive assets held at death with a basis stepped up to market value. An asset with a large built-in gain may be worth more held than sold, for some families. For 2026, the federal estate and gift tax exemption is $15 million per person, and the annual gift exclusion is $19,000 per recipient (IRS, Rev. Proc. 2025-32). Utah has no state estate or inheritance tax.
Why does this go wrong so often?
Usually because the person managing the money and the person preparing the return work in different firms, at different times of year. The advisor rebalances in June. The accountant sees the result the following March. Each does their job, and nobody owns the gap. Coordination is not a product. It is a habit of talking before acting.
A hypothetical example
Hypothetical. A Utah family holds a taxable account, two IRAs and a Roth. Their portfolio is due to be rebalanced in a year when one spouse receives a large bonus. With tax built in, the rebalance happens mostly inside the IRAs, where trades create no tax, and a charitable gift planned for that year is funded with long-held appreciated shares rather than cash. The investment mix ends up in the same place as a simple rebalance would have put it. The tax result is different.
What should you ask an advisor about tax?
- Who on your team looks at my tax situation before trades are made?
- How do you decide which account holds which investments?
- Do you choose tax lots when selling, or use the custodian's default?
- How do you coordinate with my CPA, and when?
At Cannon Capital, tax strategy is led by a CPA inside the firm, so the portfolio and the return are worked at the same table. Our wealth management page describes how portfolios are built around a plan, with tax-aware placement across account types, and how we are paid.
Educational only. Not investment, tax, or legal advice. Every situation is different; the right answer depends on the numbers, and that's what the strategy session is for. Investing involves risk, including possible loss of principal.