Prepare for Your Tax Return & Get Better After-Tax Returns

Posted on by David Ott

Tax season doesn’t have to be stressful. With the right system, you can gather your documents efficiently, maximize deductions, and even improve your investment strategy to boost after-tax returns. Below, we combine expert guidance on preparing your tax documents with strategies to optimize your portfolio for tax efficiency.

Table Of Contents show

Step 1: Create a Tax Document System

Tax time doesn’t have to be drudgery. With a simple system, you can gather all your documents in one spot, making the process much easier this year and in the future.

Key tips for organizing your tax documents:

  • Year-round collection: Keep a dedicated spot for incoming tax information and receipts. This can be a drawer, decorative box, accordion file, or electronic folder system.

  • Temporary holding file: From January 1st to March 15th, collect W-2s, 1099s, mortgage interest statements, and other documents in one folder.

  • Deduction folders: Create separate folders for healthcare, childcare, donations, and a “catchall” for miscellaneous deductions like investment expenses or unreimbursed business expenses.

  • Bank and investment statements: Organize these to quickly reference deductible expenses.

A system like this also helps maximize Flexible Spending Account (FSA) or Health Savings Account (HSA) contributions and deductions. By tracking healthcare and childcare expenses year-round, you ensure you don’t miss tax-saving opportunities.

Pro tip: If you are paper-based, annotate receipts and statements with tax relevance. If using software, tag transactions to track deductible expenses automatically.

Having a system like this can save you time, reduce stress, and keep more money in your pocket.

Step 2: Getting Better After-Tax Returns

Once your taxes are organized, it’s time to think about how your investment strategy impacts your after-tax returns. Small changes in account placement can maximize growth and reduce taxes.

Example:

Imagine a couple, Sid and Nancy, each with $500,000 in investments. Sid’s account is a tax-deferred IRA, while Nancy’s is in a taxable trust. A standard 50/50 stock/bond allocation in each account yields similar pre-tax performance.

However, using an asset location strategy:

  • Place the stock allocation in the taxable account (more tax-efficient due to capital gains treatment).

  • Place the bond allocation in the IRA (tax-deferred, minimizing ordinary income taxes).

Impact:

  • Standard allocation: Pre-tax return 11.55%, after-tax 10.75%

  • Asset location strategy: Same pre-tax return (11.55%), after-tax return improves by 0.59% annually

This approach maximizes after-tax returns for the overall portfolio, even if individual accounts grow at different rates. Remember, one account may appear more volatile, but the goal is the after-tax growth of the combined assets.

Tip: Always view your accounts holistically, focusing on the entire portfolio’s after-tax performance, not just individual account growth.

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David is a trusted advisor to 50 families, delivering comprehensive financial solutions, including financial planning, investment management, cash management, tax planning, estate planning, and charitable giving. As Chief Investment Officer, he leads the Investment Committee and the research and trading team. His team continuously evaluates investment strategies and securities, working closely with Portfolio Managers to implement them effectively.