The Tax-Smart Investor’s Year-End Portfolio Review

As the year winds down, many are busy with holiday travel, family gatherings, gift lists, and the general whirlwind of the season. A year-end portfolio review might feel like one more thing on an already packed to-do list. But during the end-of-year hustle, there’s an often-overlooked opportunity: the chance to make a few smart, tax-efficient adjustments that can meaningfully strengthen your long-term financial picture. 

The good news is that you can find ways to increase tax efficiency in your portfolio through small, intentional moves that help reduce your tax bill, realign your investments, and set you up for a smoother, more efficient start to the new year. With just a bit of planning, you can head into January knowing your portfolio is working as hard as it can behind the scenes.

For those who partner with Credent, our Investment Team handles many of these strategies for you, and your Wealth Advisor can help you understand your portfolio’s current standing.  

Below are four important areas to focus on as you work through your year-end portfolio review. 

Market fluctuations, particularly losses, can create unintended tax opportunities. If you’re unfamiliar, tax-loss harvesting involves selling an investment that has declined in value to offset capital gains elsewhere in your portfolio.  

Realizing a loss may feel counterproductive, but the purpose of tax-loss harvesting is to capture a loss for tax purposes while maintaining your portfolio’s alignment with your long-term objectives.  

Leveraging this strategy, you can offset realized capital gains, which can in turn lower your taxable income for the year. If your portfolio losses exceed its gains, you can even use them to offset up to $3,000 of ordinary taxable income during the year (including W-2 wage income). 

Any remaining, unused losses are carried forward to future years, allowing you to offset future gains and potentially reduce taxes in years when your portfolio experiences significant growth or when you need to sell. 

To take advantage of tax loss harvesting in the 2025 tax year, complete your transactions before the clock strikes midnight on December 31, 2025. Where appropriate, Credent’s Investment Team takes advantage of tax-loss harvesting opportunities on behalf of clients.  

If you harvest losses, make sure to navigate the IRS’s wash-sale rule, which is in place to prevent investors from claiming a tax loss while simultaneously maintaining the same economic position. 

A wash sale occurs when you sell an investment at a loss and repurchase the same or a “substantially identical” investment within 30 days before or after the sale. If a wash sale occurs, the loss gets added to the cost basis of the new purchase, essentially negating the tax benefit of selling at a loss in the first place. 

For example, you may not sell Company A’s stock from your taxable account, repurchase it 10 days later in your IRA, and apply the loss to another asset’s gain. This would violate the wash-sale rule. 

If you temporarily shift your holdings to harvest a loss, use the wash-sale rule to determine the right time to reverse back to your original allocation. Our team can help ensure you aren’t violating any IRS rules when executing tax-loss harvesting. 

While asset allocation considers the investments you own, asset location refers to the specific accounts holding your investments.  

Different types of accounts (namely, tax-deferred and Roth) follow different tax rules. Instead of spreading investments across accounts randomly, a thoughtful asset location strategy enables you to match each type of investment with the account that provides it with the most favorable tax treatment. 

In general, placing tax-efficient investments (such as ETFs, equities, and municipal bonds) in taxable accounts, and tax-heavy or high-growth investments in tax-deferred and Roth accounts, can help your portfolio grow with less tax drag year after year. 

Taxable accounts are generally best suited for investments taxed at favorable long-term capital gains rates, which cap at 20% for most investors. Examples include: 

• Individual equities 
• Exchange-traded funds (ETFs) 
• Municipal bonds 
• Tax-efficient structured assets 

These accounts also enable more advanced tax-optimization strategies such as direct indexing and ongoing tax-loss harvesting, which Credent’s Investment Team can deploy on behalf of clients.  

Investments that tend to yield high income — such as REITs and high-yield bonds — often create a heavier tax burden in taxable accounts. For most investors, these may be better suited elsewhere. 

Tax-deferred accounts (like traditional IRAs) allow for more active management, since gains aren’t taxed annually. Investments that may be traded frequently or expected to yield higher returns often fit well here. 

Because qualified withdrawals from a Roth account aren’t taxed, Roth IRAs are generally most suitable for investments with the highest long-term growth potential, since growth can compound uninterrupted each year. 

As markets rise and fall, your target asset allocation naturally drifts. Over time, this drift can unintentionally increase risk. Equity valuations, for instance, may rise significantly during strong market periods, while bonds may decline during times of volatility. 

Rebalancing is the disciplined process of adjusting your portfolio to its intended allocation mix of stocks, bonds, and other asset classes. It helps: 

• Maintain the appropriate risk profile 
• Improve long-term risk-adjusted returns 
• Reduce unintended style or asset-class concentration or drift 
• Keep your investment strategy aligned with your financial plan 

In taxable accounts, rebalancing may involve selling appreciated investments, which can trigger capital gains. While being sensitive to the tax consequences of your investment decisions is important, the long-term impact of an unbalanced portfolio also needs to be emphasized — particularly for those approaching retirement or relying on the portfolio for income. 

You may be able to rebalance your portfolio through new contributions or by reinvesting dividends. This method would not involve realizing taxable gains. 

A Credent client doesn’t need to worry about rebalancing their own accounts, as our Investment Team keeps their portfolio strategically aligned with their plan.  

The majority of tax strategies (including those mentioned above) should be completed by December 31 to be counted for the 2025 tax year. Keep in mind, some of these strategies can take several business days to execute. 

Here are some other examples of tax opportunities to consider before the end of the year: 

• Annual gifting and charitable contributions (including to a donor-advised fund) 
• 401(k) and 403(b) contributions 
• Roth IRA conversions 

There is an exception to the year-end deadline, as IRA contributions can be made until April 15, 2026, and still count towards the 2025 tax year. 

If you have time this December, consider checking on your portfolio. It’s easy to take a “set it and forget it” approach, especially when following a long-term investment strategy. However, with a year-end portfolio review and a few thoughtful moves, you may be able to bring your assets back into alignment, realize gains with more tax efficiency, and prepare your portfolio for the new year.  

At Credent, we approach portfolios with objectivity and expertise, executing appropriate tax-loss harvesting, asset location, and rebalancing for clients. We also check in regularly to help individuals understand how their portfolios are operating and performing.  

The end of the year is fast approaching, and we can help prepare your portfolio for the new year. 

To discuss any of these year-end portfolio review strategies in more detail, reach out to the Credent team as soon as possible using the form below.