Tax Center | Build Tax-Efficient Portfolios

INVESTING FOR AFTER-TAX RETURNS

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.

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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.

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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.

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BlackRock’s Tax-Smart Framework

Optimizing for after-tax returns can help investors keep more of what they earn. Tap into BlackRock’s framework for keeping tax management at the forefront of your investment process.

Asset allocation

Use client’s total portfolio goals, investment objectives and tax situation, to guide how you allocate across asset classes.

Asset location

Decide which type of account each asset class should sit in. Take a total relationship view when deciding between tax-exempt, tax-deferred and taxable accounts.

Vehicle selection

Select the vehicle (ETF vs. MF vs. SMA) and strategy (high vs. low turnover) that is best suited to meet your client's goals and tax situation.

Always-on monitoring

Incorporate tactical steps year-round to help keep client tax bills low. Monitor capital gains, consider tax loss harvesting, and trade with taxes in mind.

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.

Uncover the framework and earn CE credits Uncover the framework and earn CE credits

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.

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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

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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.

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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.

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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.

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