How to Boost Tax Yields Through Smart Investing in 2024

Taxes are an inevitable part of life. As an investor, the taxes you pay on investment income can significantly impact your overall returns. While you can’t completely eliminate taxes, you can take steps to help reduce and optimize the taxes you pay through strategic investment choices – a concept known as tax-efficient investing. In this blog post, we’ll explore what tax yields are and provide actionable tips on how to maximize them through your investment strategy.

Key Takeaway:

  • Tax yields refer to the after-tax returns on investments. By making tax-efficient investment choices, investors can aim to keep more of their investment returns.
  • Utilizing retirement accounts like 401ks and IRAs can allow investments to grow tax-deferred.
  • Holding investments long-term (over one year) qualifies them for preferential capital gains tax rates.
  • Tax-loss harvesting involves realizing investment losses to offset capital gains and income for tax savings.
  • Balancing tax deferred and taxable accounts provides flexibility to control taxes.
  • Prioritizing more tax-efficient asset classes and investments (e.g. index funds, municipal bonds) can boost after-tax returns.
  • Donating long-term appreciated investments provides charitable deductions plus avoids capital gains tax
  • An integrated tax optimization strategy tailored to one’s situation is key to maximize tax yields over time.

What Are Tax Yields?

In simple terms, tax yields refer to the after-tax return on an investment. They represent the actual investment returns you receive after accounting for the taxes you must pay. For example, if you earn an 8% return on an investment but must pay 25% capital gains tax on the earnings, your after-tax return or tax yield is 6%.

Maximizing tax yields means structuring your investments in such a way so more of your returns stay in your pocket. The concept of tax yields is directly related to tax-efficient investing. The more tax-efficient your investments and overall strategy, the higher your tax yields will typically be.

Why Focus on Tax Yields?

Some investors focus strictly on pre-tax returns without much thought about taxes. However, taxes can eat significantly into your actual realized gains. According to a 2021 Vanguard report, for taxable accounts over a 30-year period, the after-tax return can be up to 2% lower per year compared to pre-tax.

Those reduced annual returns compound over long time periods and can substantially impact your ability to meet financial goals. By focusing on tax efficiency, you can aim to minimize taxes and increase how much you keep from your investment gains. Ultimately, your tax yields indicate the actual growth of your portfolio you can utilize.

Tips to Maximize Tax Yields

Fortunately, you aren’t powerless when it comes to taxes. Several strategic moves can set you up to maximize your tax yields:

  1. Utilize Retirement Accounts Retirement accounts like 401ks and IRAs provide excellent tax shelters for your investments. As Investopedia notes, the funds grow tax-deferred, meaning you pay no taxes on gains annually. You only owe income taxes once you take qualified distributions in retirement. In 2022, you can contribute up to $20,500 to a 401k and $6,000 to an IRA plus catch up contributions if over age 50. Maxing out these tax-advantaged accounts should be a priority for higher tax yields.
  2. Hold Investments Long Term
    The longer you hold investments like stocks and mutual funds, the more you can benefit from preferential long-term capital gains tax rates. According to the IRS, if you hold investments over a year before selling, you pay either 0%, 15% or 20% capital gains rather than ordinary income tax rates. The buy and hold strategy boosts tax efficiency.
  3. Use Tax-Loss Harvesting Tax-loss harvesting involves selectively realizing losses to offset realized capital gains and income. For example, you can sell poorer performing stocks at a loss to offset stocks you sell for a gain. Up to $3,000 in net capital losses can offset ordinary income annually. Carrying forward additional losses offsets future taxes. Tax-loss harvesting lowers your tax liability and raise tax yields.
  4. Balance Tax Deferred & Taxable Accounts The best overall approach is holding a mix of tax-advantaged (401k, IRA) and taxable accounts. As Morningstar explains, tax-deferred accounts alone leave you with 100% taxable income in retirement. Maintaining some taxable investments gives flexibility to control taxes in retirement. Additionally, taxable accounts benefit more from long-term gains and tax-loss harvesting tactics.
  5. Consider Tax-Efficient Investments Certain asset classes and investments produce lower taxable income year-over-year compared to others. Index funds and ETFs tend to be quite tax efficient due to lower turnover compared to actively managed mutual funds. Municipal bonds also offer tax perks, with their income exempt from federal taxes and sometimes state. Favoring tax-efficient investments boosts after-tax returns.
  6. Donate Appreciated Investments For philanthropically-minded investors, donating long-term appreciated securities offers a two-fold tax benefit. First, you can deduct the full fair market value of donated investments as an itemized charitable deduction. Second, you avoid paying capital gains taxes on the appreciation. The tax benefits equal more residual value to reinvest.

The Importance of an Overall Tax-Efficient Strategy

While each of these tips can improve tax efficiency, the most powerful approach is developing an overall investment strategy focused on tax optimization and maximizing long-term, after-tax returns. Work with a tax-savvy financial advisor to analyze your situation, project future taxes, and build a customized tax-minimization plan leveraging the right mix of accounts, asset placement based on tax treatment, loss harvesting opportunities, and more. The comprehensive strategy can lead to substantially higher tax yields over time.


Taxes take a real bite out of returns if left unchecked. But implementing tax-efficient investing strategies can help investors control and optimize their tax obligations. Following the tips outlined related to tax-advantaged accounts, long-term holding periods, balancing account types, tax-efficient investments and more sets the stage for higher tax yields. Developing an integrated tax efficiency strategy tailored to your situation can ultimately allow more of your investment earnings to work for your future. Consult with financial and tax professionals to plan tax-optimized, wealth-building investments.


What exactly are tax yields?

Tax yields refers to the after-tax returns on investments. They represent how much you actually get to keep from your returns after accounting for taxes owed.

How can retirement accounts help increase tax yields?

Retirement accounts like 401ks and IRAs allow investments to grow tax-deferred. You avoid paying taxes on investment gains and compounding interest over time, resulting in higher after-tax returns.

What tax rate applies to long-term capital gains and dividends?

For investments held over one year, preferential long-term capital gains tax rates of 0%, 15% or 20% apply based on income level and filing status. These are lower than ordinary income tax rates.

What can I deduct against ordinary income with tax-loss harvesting?

Up to $3,000 in net realized losses per year from tax-loss harvesting can be deducted annually to offset ordinary income like wages, reducing your tax liability.

If I donate appreciated investments to charity, what tax benefits do I receive?

Donating investments held longer than one year allows you to deduct the full market value while avoiding paying capital gains taxes, a significant tax advantage.


Razib is a skilled writer with 5 years of experience specializing in technology, finance, automotive and real estate. A BBA graduate from 2014, Razib's passion for these industries shines through in his informative and engaging content. His ability to break down complex topics and stay current on the latest trends makes him a valuable resource for readers seeking to understand these dynamic fields.

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