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INVESTING FOR AFTER-TAX RETURNS
Taxes should be simpler
Consider acting now to help lower 2024 tax bills and optimize after-tax return potential for clients. Explore BlackRock’s suite of solutions, tools and insights to help you build portfolios with taxes in mind.
Monitor to help avoid capital gains distributions
Morningstar Direct, as of 12/31/23. U.S. style-box funds are those funds categorized by Morningstar as “U.S. Equity” under Morningstar’s U.S. Category group as oldest share class, non-indexed open-end funds. % of mutual funds distributing = 5-year annual average % of funds that paid a gain from 2019-2023. Includes funds available as of 10/31 in each year from 2019-2023.
76% of U.S. active equity mutual funds distributed year-end capital gains over the past 5 years on average.1 Access BlackRock’s Tax Evaluator to see the size and date of pending capital gains distributions across 7,000+ funds.
Investors want to build wealth over time, but if you aren’t careful, taxes can eat away at that wealth.
One way to reduce your tax burden may be to use a tax-loss harvesting strategy.
With this strategy, you look to sell investments at a loss and use the proceeds to buy investments with similar exposures.
Let’s take a look at a hypothetical example to see how it works.
Generally, if you sell a taxable investment for more than you paid for it, you have a realized gain.
Similarly, when you sell an investment for less than you paid for it, you have a realized loss.
With tax-loss harvesting, you realize losses, and reinvest the proceeds into your portfolio.
When realized losses offset realized gains, this means less taxes paid and more money to invest and potentially grow.
Any losses that were not used this year can be carried forward into future years.
Some things to consider with tax-loss harvesting:
First, if you harvested losses but don’t have enough gains to fully offset, you can still lower your year-end tax bill with a reduction of up to $3,000 of ordinary income per year.
Second, the Internal Revenue Services, or IRS, has stipulations around netting gains and losses.
Finally, the IRS 30-day wash-sale rule generally prevents you from recognizing a tax loss if you repurchase the same or a substantially identical security during the 30-day wash sale window.
And as always, tax-loss harvesting may not be for everyone.
Help your clients stay invested while potentially saving money on taxes.
Use BlackRock's Tax Evaluator to help identify tax loss harvesting opportunities.
INVESTING INVOLVES RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
The Internal Revenue Service has not released a definitive opinion regarding the definition of “substantially identical” securities and its application to the wash sale rule and ETFs. The information and examples provided are not intended to be a complete analysis of every material fact respecting tax strategy and are presented for educational and illustrative purposes only. Tax consequences will vary by individual taxpayer and individuals must carefully evaluate their tax position before engaging in any tax strategy.
This material is provided for educational purposes only and is not intended to constitute investment advice or an investment recommendation within the meaning of federal, state or local law. You are solely responsible for evaluating and acting upon the education and information contained in this material. BlackRock will not be liable for direct or incidental loss resulting from applying any of the information obtained from these materials or from any other source mentioned. The information contained herein is based on current tax laws, which may change in the future. BlackRock does not render any legal, tax or accounting advice and the education and information contained in this material should not be construed as such. Please consult with a qualified professional for these types of advice.
Due to the complexity of tax law, not every single taxpayer will face the situations described herein exactly as calculated or stated; i.e., the examples and calculations are intended to be representative of some but not all taxpayers. Since each investor’s situation may be different in terms of income tax, estate tax, and asset allocation, there may be situations in which the recommendations would not apply. Please discuss any individual situation with tax and investment advisors first before proceeding. Taxpayers paying lower tax rates than those assumed or without taxable income would earn smaller tax benefits from tax-advantaged indexing or even none at all compared to those described.
No proprietary technology or asset allocation model is a guarantee against loss of principal. There can be no assurance that an investment strategy based on the tools will be successful.
Prepared by BlackRock Investments, LLC, member FINRA. BlackRock Fund Advisors, an affiliate of BlackRock Investments, LLC, is a registered investment adviser.
©2023 BlackRock, Inc. All rights reserved. BLACKROCK is a trademark of BlackRock, Inc., or its subsidiaries in the United States or elsewhere. All other marks are the property of their respective owners
Tax loss harvest
Uncover tax loss harvesting opportunities with price return data in BlackRock’s Tax Evaluator. Funds with a positive total return could still have a negative price return, and those losses could help offset gains.
Earn CE with our Tax Foundations course
Optimizing for after-tax returns can help investors keep more of what they earn. Learn why managing taxes matters and how to adapt your investment process.
When building portfolios, many investors focus on risk and fees, but that’s only part of the picture. What about taxes? They can drag down investment returns and remember, 'It’s not what you make. It’s what you keep'.
Investors are increasingly focused on structuring their accounts for what really matters, after-tax returns – returns they can actually spend.
This is where BlackRock’s Fill First strategy can help you keep more of what you earn. Here’s how it works - think about filling buckets with pitchers of water. The buckets are your accounts – your tax-deferred IRA and your traditional taxable account. And the pitchers are your assets – bonds, equity ETFs and equity mutual funds.
So, how do you best fill the buckets?
Let’s start with bonds.
Now, on to stocks.
To diversify, investors can choose from ETFs or active mutual funds or both, depending on your needs – but where you put each matters.
ETFs tend to distribute capital gains far less frequently than active mutual funds, making them more tax efficient. Anchor your taxable accounts with ETFs to help minimize capital gains taxes.
Active mutual funds seek to outperform the market but trade a lot to do so. This leads to capital gains distributions for fund shareholders, which means taxes. Give your active managers their best chance to shine by overweighting them in your IRA.
Don’t bank on pre-tax returns. Get the full picture using the “fill first” framework to help optimize for after-tax returns and consider BlackRock for tax-smart investing strategies.
A closer look at asset location
When investing for after-tax returns, it's important to take a total relationship view across qualified and taxable accounts. Consider BlackRock’s “fill first" model to help reposition portfolios for after-tax returns.
BLACKROCK RESOURCES: AFTER-TAX STRATEGIES
Explore tax-smart portfolio strategies
BlackRock is a leader in indexing and tax-managed investing solutions to help you better serve your clients.2 We provide access across:
Active & index iShares ETFs
ETFs have paid out significantly less distributions than mutual funds, even when actively managed. Over the last 5 years, 19% of active ETFs paid out a gain compared to 76% of mutual funds.3
BlackRock SMAs
Offerings across fixed income, direct indexing, active equity, and option overlays that can provide greater flexibility and control through personalization, transparency and maximizing after-tax return potential.
BlackRock municipal platform
As one of the world’s largest municipal bond managers, investors can benefit from our trading scale and credit research across mutual funds, ETFs, and SMAs.
Tax-aware models
BlackRock’s Tax-Aware model portfolios are built with the same core investment views as our flagship Target Allocation model portfolios, but with a focus on maximizing after-tax return potential.
After-tax solutions for high-net-worth clients
Latest tax insights
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1 Source: Morningstar as of 12/31/23. Includes funds categorized as “U.S. Equity” under Morningstar’s U.S. Category Group. % of funds that paid a gain = 5-year annual average % of funds that paid a gain from 2019-2023. Includes funds available as of 10/31 in each year from 2019-2023. Past distributions are not indicative of future distributions.
2 Source: BlackRock as of 12/31/23. BlackRock is an industry leader in SMAs with $185B+ assets under management, 117K+ SMA accounts and 50+ available strategies. AUM and accounts managed are inclusive of Aperio.
3 Source: Morningstar as of 12/31/23. Includes funds categorized as “U.S. Equity” under Morningstar’s U.S. Category Group. % of funds that paid a gain = 5-year annual average % of funds that paid a gain from 2019-2023. Includes funds available as of 10/31 in each year from 2019-2023. Past distributions are not indicative of future distributions.
Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained by visiting www.iShares.com or www.blackrock.com. Read the prospectus carefully before investing.
Consider the wash-sale rule when tax-loss harvesting. Wash sale restrictions prevent investors from realizing a loss on a sale and then buying a “substantially identical” security 30 days before and after the sale of the security. Please note that iShares ideas do not take wash sale rule considerations into account and BlackRock does not provide tax advice. We urge you to consult a tax professional regarding the potential consequences of this rule.
Investing involves risk, including possible loss of principal.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments.
Options involve risk and are not suitable for all investors. There is no guarantee that any investment strategy illustrated will be successful or achieve any particular level of results.
The tools are provided on an "as-is" basis. BlackRock expressly disclaims all warranties, express or implied, statutory or otherwise with respect to the tools (and any results obtained from their use) including, without limitation, all warranties or merchantability, fitness for a particular purpose or use, accuracy, completeness, originality and/or non-infringement. In no event shall BlackRock have any liability for any claims, damages, obligations, liabilities or losses relating to the tools including, without limitation, any liability for any direct, indirect, special, incidental, punitive and/or consequential damages (including loss of profits or principal). The use of the tools are subject to the BlackRock Terms of Use.
The data collected through the tools is treated pursuant to BlackRock’s Data Promise.
This material is provided for educational purposes only and does not constitute investment advice. The information contained herein is based on current tax laws, which may change in the future. BlackRock cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided in this publication or from any other source mentioned. The information provided in this material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.
The Morningstar ranking data comparison universe is ETFs and mutual funds within the fund’s Morningstar category and based on total return. Total return represents changes to the NAV and accounts for distributions from the funds (excluding any applicable sales charges). BlackRock provides compensation in connection with obtaining or using third-party ratings and rankings.
This material is prepared by BlackRock and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This material may contain ‘forward looking’ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.
This material does not constitute any specific legal, tax or accounting advice. Please consult with qualified professionals for this type of advice.
The iShares and BlackRock Funds are distributed by BlackRock Investments, LLC (together with its affiliates, “BlackRock”).
BlackRock Fund Advisors, an affiliate of BlackRock Investments, LLC, is a registered investment adviser.
© 2024 BlackRock, Inc., or its affiliates. All rights reserved. BLACKROCK and iSHARES are trademarks of BlackRock, Inc., or its affiliates. Other trademarks are the property of their respective owners.
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