5 Questions to Ask Your Adviser About Taxes
Do you know what asset location is? What about tax loss harvesting? Understanding these concepts might help you minimize your tax hit.

As Ben Franklin once said, "There are only three things certain in life: death, taxes… and an annual scramble by investors to try and save money on taxes before the filing deadline."
Okay, maybe he only said two of those, but as we approach another April 15, investors are once again looking for ways to be as tax efficient as possible with their investments. My advice: You shouldn't only be thinking about taxes for a few months out of every year. Tax efficiency is best achieved when there is an ongoing, concerted effort toward achieving it.
Still, this time of year does provide the perfect time to talk to your financial adviser or advisers about how to approach taxes on investments. Here are five questions you should be asking:

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
1. Am I invested in the most tax-efficient vehicles based on my needs?
The first thing most people look at when choosing an investment product is its overall rate of return. This makes sense as a starting point, but it's not the only relevant factor in investment selection. Taxes can take a considerable chunk out of your gains and leave you with less of a return than expected. There are multiple solutions to minimizing tax implications including tax-managed mutual funds or investing in exchange-traded funds. The important thing is to work with your adviser to find sensible options that don't also minimize returns. Are there better options to minimize taxes while still achieving growth? Go ahead; ask your adviser.
2. Do I have my investments in the most tax-efficient accounts?
Achieving tax efficiency isn't just about the assets you're invested in; it's also about the accounts in which those investments live. One strategy that can minimize taxes is known as "asset location." In this approach, you would hold fewer tax efficient assets in a tax deferred account – such as a 401(k) – and more tax efficient assets in accounts like a Roth IRA, where contributions come from post-tax income, so you don’t pay taxes on it in the future. This helps balance out your tax exposures while leaving your overall asset allocation intact. This is a fairly simple strategy, but it must be executed carefully.
3. How often should I be rebalancing and how do I do it?
A vast majority of investors rebalance on an annual, semi-annual or quarterly basis. There's nothing inherently wrong with this strategy, but it could be costing a considerable amount in taxes and fees. You may want to consider rebalancing more strategically—such as when your portfolio has drifted outside of the acceptable tolerance for the asset classes—and with and eye toward managing taxes. While this would be a nightmare for investors to do on their own, working with an adviser can help achieve lower taxes through more strategic rebalancing. It's not for everyone, but your adviser should be able to tell you if it's a good fit.
4. What are my opportunities for tax loss harvesting?
No one picks winners every time. Especially in down market years, you're likely to have some investments in your portfolio that didn't perform well. While you can't erase these losses, you can take steps to minimize the impact of potential investment losses. One common strategy is to offset taxes on gains and income by harvesting a loss upon selling a security. Maybe you had a good year and didn't have many poor performing assets, but if you did, tax loss harvesting can help minimize the blow.
5. What changes are coming in tax year 2016?
With each new year, comes a new set of updates to tax laws. For example, tax brackets and the amount that can be invested in a company 401(k) or an IRA tend to change annually, although that's not the case this year. While the tax brackets will be shifting, the limits on contributions to 401(k)s and IRAs will remain the same. Having a conversation with your adviser about annual changes will help you develop a comprehensive plan for managing taxes throughout the year. As Ben Franklin actually once said, "Diligence is the mother of good luck."
Phil Simonides, CFP®, is Group Vice President at McAdam, where he oversees the firm's Washington, D.C., metro, New York City metro and Boston offices.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

-
What About Those ‘Guaranteed’ Life Insurance Ads?
Guaranteed life insurance policies can sound tempting if you've been declined for insurance elsewhere. Here are four downsides and one alternative.
-
13 Answers to Pressing Social Security Questions
From smart claiming strategies for couples to tips on maximizing your monthly check, we have advice that can help you.
-
Your Home + Your IRA = Your Long-Term Care Solution
If you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
A Retirement Planner's Advice for Taking the Guesswork Out of Income Planning
Once you've saved for retirement, you'll need your nest egg to support you for as many as 30 years. For that, you need a clear income strategy, not guesswork.
-
Technology Unleashes the Power of Year-Round Tax-Loss Harvesting
Tech advancements have made it possible to continuously monitor and rebalance portfolios, allowing for harvesting losses throughout the year rather than just once a year.
-
Summer Is Made for Sun, Fun … and Estate Planning Conversations
Now is the time to discuss estate planning with your loved ones to ensure the Great Wealth Transfer is efficient, tax-aware and in line with your legacy goals — not Uncle Sam's.
-
Don't Have an Estate Plan? Six Things That Could Go Very Wrong
Bad things can happen when you're unprepared, such as big-time taxes and family turmoil. Generational planning can help protect the people you love. Here's some expert advice to help you out.
-
The $1 Million Retirement Question: Are You Being Tax-Smart About Your Pension?
A financial planner raises some key considerations for navigating retirement with a pension and recommends four strategies.
-
Divorce and Your Home: An Expert's Guide to Avoiding a Tax Bomb
Your home is probably your biggest asset, so if you're getting a divorce, the stakes are high. Keep it? Sell it? You need to have a good plan in place for how to handle it.
-
Fewer Agents, Fewer Audits: How IRS Staff Cuts Are Changing Enforcement
Significant reductions in the IRS workforce appear to be increasing the number of 'no change' audit closures. The shift could potentially increase the overall tax gap — the difference between taxes that should have been paid and those that were.