Here’s Why Every Tax Season is a Good Time to Revisit Your Financial Investments
The tax season is the perfect time to take a closer look at your financial investments. The 2025 tax season started on January 27 and is a great opportunity to get a fresh perspective on your investment portfolio. Taxes and investments go hand in hand, and reviewing them together can help you make smarter, more tax-efficient decisions, such as evaluating past decisions, adjusting your portfolio, and planning for the year ahead.
A financial advisor can guide you through the process of an investment review during the tax season. This article will dive into why tax season is the ideal time to revisit your investments.
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Below are 5 reasons why the tax season is the right time to assess your financial investments:
1. It helps you start the new year on a good note
If you are wondering how to reset your finances, looking at your investment at the start of a new year can be the perfect move. A new year allows you to start afresh. You can evaluate your finances, reflect on the past year’s progress, and make better investment decisions for the future. Looking at your tax return, earnings, and investment performance can help you understand where you stand financially. Your taxable income, deductions, and credits can offer a clear picture of how well your money is working for you. If you find that your post-tax income is not where you would like it to be, you can take this time to reassess your financial strategy.
A review of your retirement accounts and investments can help you point out if you need to make any adjustments. For instance, if your Roth Individual Retirement Account (IRA) is leading to higher taxes now, it might make sense to shift to a Traditional IRA, which allows you to defer income tax until retirement. On the other hand, if your future tax burden looks high, you can continue sticking to a Roth IRA since your qualified withdrawals will be tax-free. Examining your tax situation also helps you determine if you are using all available tax-efficient investment vehicles at your disposal. If your taxable income is higher than expected, increasing contributions to tax-advantaged accounts like a 401(k), IRA, or Health Savings Account (HSA) can help you reduce your taxable income and boost long-term savings. An HSA, in particular, can be a great choice as it provides a triple tax advantage, where your contributions are tax-deductible, investment growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. Increasing your HSA contributions can be a smart way to prepare for the future while lowering your tax liability today.
Revisiting your financial plan during tax season also provides an opportunity to evaluate your income and career choices. If your income is not keeping up with your financial goals, consider exploring higher-paying opportunities or negotiating a raise at work to start the year on a higher income.
2. It helps you rebalance your portfolio and focus on tax diversification
Rebalancing your portfolio is one of the best ways to do a financial reset. Tax season presents the perfect opportunity to assess how tax-efficient your investments are. Reviewing your tax return, capital gains, and deductions at this time can help you identify whether your portfolio needs adjustments to minimize tax liabilities and maximize your after-tax returns.
If you have a high tax bill, it could indicate that your investment mix is not tax-optimized. Say a large portion of your gains are being taxed at short-term capital gains rates. In this case, your portfolio might be too focused on short-term investments, and you would be taxed at ordinary income levels. Allocating more towards long-term investments can reduce taxes, as long-term capital gains are taxed at lower rates of 0%, 15%, or 20%, depending on your income bracket.
Tax diversification is a key factor to consider when rebalancing your portfolio during the tax season. If your retirement savings are primarily in a Traditional 401(k) or IRA, withdrawals will be taxed as ordinary income in retirement. Balancing this with a Roth IRA or Roth 401(k) can create a mix of tax-free and tax-deferred income and allow more flexibility when withdrawing funds later. Since Roth withdrawals in retirement are tax-free, having a mix of both accounts can help you manage taxes more effectively when you start taking distributions.
Municipal bonds can also play a role in a more tax-efficient portfolio. Interest from municipal bonds is often tax-free at the federal level and, in some cases, even at the state and local levels. If your taxable investment income is too high, adding municipal bonds could help lower your overall tax liability while still generating income. Certain mutual funds and ETFs are also designed to be tax-efficient. Tax-exempt mutual funds, which primarily hold municipal bonds, allow you to earn returns without owing taxes on the income. Some index funds and ETFs that invest in these bonds can also help reduce capital gains distributions, further lowering your tax burden. You can consider these options to lower your tax liability both today and, in the future while optimizing the overall growth of your portfolio.
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3. It helps you take advantage of tax loss harvesting
Tax-loss harvesting is a great tax season money management strategy. It refers to selling an investment at a loss to offset the gains you have made elsewhere in your portfolio. If your investment portfolio has generated high taxable profits in a year, reviewing it during the tax season can help you identify opportunities to reduce your tax bill by strategically selling losing assets. This strategy works by using investment losses to offset capital gains or up to $3,000 of ordinary income per year. If you have had a strong year with significant capital gains, you can consider selling investments that are currently at a loss to balance out those profits and lower your overall taxable income.
The IRS has specific rules for how losses can be applied:
- Short-term losses from assets held for one year or less must first be used to offset short-term gains, which are taxed at higher ordinary income tax rates.
- Long-term losses from assets held for more than a year must be used to offset long-term gains, which are taxed at the more favorable long-term capital gains rates of 0%, 15%, or 20%.
- If your losses are higher than your gains, you can use up to $3,000 of those losses to reduce your taxable ordinary income. If you have remaining losses, you can carry them forward to future years.
While tax-loss harvesting can be done at any point in the year, reviewing your portfolio near the end of the year or during tax season gives you a clearer picture of your gains and losses. However, before you use this strategy, keep in mind the wash-sale rule, which states that you cannot repurchase the same or a considerably similar investment within 30 days before or after selling it at a loss. If you violate this rule, you will not qualify for tax harvesting and will incur a loss while paying taxes on your profits. It is advised to consult with a financial advisor on the matter, especially if you are using the strategy for the first time.
4. It ensures you use your tax refund wisely
Tax season is an opportunity to make the most of your tax refund. Reviewing your financial investments at this time helps you ensure that any refund you receive is put to good use instead of disappearing into everyday spending. A large tax refund can feel like a bonus, but how you use it matters. Instead of parking it in your bank account or getting lost in monthly expenses, consider investing it in ways that secure your financial future.
You can boost your retirement savings by contributing to your 401(k), IRA, or Roth IRA with your refund. This can help increase your retirement nest egg. This is a great way to catch up if you are behind on savings. You can also use it to build an emergency fund. If you do not already have at least three to six months’ worth of living expenses set aside, consider using your refund to create or strengthen your emergency fund. This can help you in the future in case of job loss or medical emergencies. Investing in your children’s future is another great use of the refund. If you have kids, consider putting some of your tax refunds into a 529 college savings plan to reduce their future student loan burden. Additionally, you can pay off high-interest debt with a tax refund. Credit card debt and other loans with high interest rates can eat away at your financial health. If you carry a pending balance, prioritize paying off the debt with the highest interest rate first while continuing to make minimum payments on other loans.
If you are unsure about the best way to use your tax refund, consulting a financial advisor can help. A financial advisor can help with implementing smart investing strategies for tax benefits.They can help you identify the best use for your tax refund and ensure your money is not wasted but put to good use that benefits you in the long run.
5. It helps you plan your future moves
Tax season is like a financial report card. It puts everything on paper. You might not have realized how much you owe in capital gains tax, taxes on Required Minimum Distributions (RMDs), or even how much you are truly saving until you go through the process. This annual financial check-up allows you to understand how different income sources, investments, and expenses impact your tax liability and plan your next steps.
For instance, if you are retired and taking RMDs from a traditional IRA or 401(k), revisiting your financial investments during the tax season helps you assess how much you owe to the government. The government requires you to withdraw a certain percentage of your account balance each year once you reach the eligible age, but you are not limited to the minimum amount. You can draw more funds if you wish. Reviewing your financial statements and planning ahead can help you withdraw additional funds strategically while staying in a lower tax bracket. For example, if your taxable income is already high, it may be better to withdraw only the required amount and let the rest grow tax-deferred. However, withdrawing more could make sense if you are in a lower tax bracket this year. This could reduce the size of future RMDs and lower your tax burden down the road.
If you have sold your investments for a profit, you would owe capital gains taxes on your earnings. Reviewing your investments and tax returns can help you understand how much you paid in capital gains taxes and whether you need to make any adjustments. If your capital gains tax bill is high this year, you can consider holding onto your investments longer to qualify for lower long-term capital gains rates later. If you anticipate a high tax year, you can defer selling investments until the next year, when your taxable income may be lower. Investing in tax-exempt municipal bonds or other tax-efficient funds can also help reduce future tax burdens.
If your taxable income is higher than expected, tax season also highlights whether your portfolio is too heavily weighted in high-tax assets. It may be time to rebalance by shifting funds into more tax-efficient options. For example, reviewing your investments during the tax season may reveal that too much of your income is coming from interest-bearing investments, which are taxed as ordinary income. You could consider reallocating some of these funds to dividend-paying stocks or ETFs that qualify for lower tax rates.
To conclude
An investment review during the tax season can provide you with clarity, a fresh start, and a strategic opportunity to improve your financial future. It helps you understand where you stand, identify what is working, and make informed decisions for the year ahead. Make sure to use this time to rebalance your portfolio, optimize tax strategies, and plan ahead to maximize returns while minimizing your tax burden. If you are unsure how to proceed, consulting with a financial advisor can help you ensure your financial plan aligns with your long-term goals.
Use the free advisor match tool to get matched with seasoned financial advisors who can help assess your financial investments to lower your tax bill. Answer some simple questions about your financial needs and get matched with 2 to 3 advisors who can best fulfill your financial requirements.
To learn more about the most suitable tax-saving strategies for your specific financial requirements, visit Dash Investments or email me directly at dash@dashinvestments.com.
About Dash Investments
Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.
Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals. CEO & Chief Investment Officer Jonathan Dash has been covered in major business publications such as Barron’s, The Wall Street Journal, and The New York Times as a leader in the investment industry with a track record of creating value for his firm’s clients.
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