When people think about building wealth, they often focus on earning more, investing wisely, and avoiding unnecessary expenses.
Taxes sometimes don't make the list.
But taxes don't just affect what you owe each April; they can slowly reduce how much of your money stays invested and continues compounding over time. Even small tax savings today can make a meaningful difference decades down the road.
Why Taxes Matter More Over Time
One of the biggest challenges with taxes is that their true cost isn't always obvious. Sure, you notice the money that goes to the IRS, but what you don't see is the money that no longer has the chance to keep growing. Every dollar paid in taxes today is a dollar that can't stay invested and benefit from years of compounding.
That's why tax-efficient investing can make such a difference over the long run. For many investors, long-term capital gains are taxed at more favorable rates than ordinary income. In 2026, those federal long-term capital gains rates will remain 0%, 15%, or 20%, depending on your taxable income, and the IRS increased the income thresholds for inflation. For example, married couples filing jointly can realize long-term capital gains at the 0% federal rate on taxable income up to $98,900, while single filers can do so up to $49,450.
That doesn't mean you should avoid selling investments when it makes sense. It just means that the timing of a sale, how long you've owned an investment, and how it fits into your overall tax picture can have a meaningful impact on how much of your return you actually get to keep.
Here’s an example:
Imagine a married couple in their early 60s with a taxable investment account worth $800,000. One investment has grown by $200,000, and they're planning to sell it before retirement.
If they sell the entire position while they're still earning high salaries, the gain could be taxed at a higher long-term capital gains rate, resulting in a federal tax bill of as much as $40,000 (assuming a 20% capital gains rate, not including any applicable surtaxes or state taxes).
Instead, they work with a financial planner and spread the sale over several years after retirement, when their taxable income is lower. If much of the gain qualifies for the 15% long-term capital gains rate instead, their federal tax bill on the same $200,000 gain drops to about $30,000, a savings of roughly $10,000.
That $10,000 doesn't just stay in their pocket. It can remain invested, continue compounding over time, or be used to help fund retirement, travel, or other long-term goals. The investment itself didn't change - only the timing of the sale did.
Questions to Ask Yourself
You don't have to become a tax expert, but it's worth asking a few questions before making major financial decisions:
- Am I about to sell an investment that I've owned for less than a year? Waiting until it qualifies for long-term capital gains treatment could reduce the taxes you owe.
- Could spreading a large sale over multiple years lower my tax bill? Timing can sometimes make a meaningful difference.
- Are my investments in the most tax-efficient accounts? Where you hold an investment can be almost as important as the investment itself.
- Will this decision affect my taxes in retirement? Withdrawals from different types of accounts are taxed differently, so it's helpful to think beyond this year.
- Have I talked with my financial and tax professionals before making a major move? Selling a business, exercising stock options, taking large retirement withdrawals, or receiving an inheritance can all have tax consequences that may be easier to manage with advance planning.
The Takeaway
Taxes are one of the few factors you can actually plan for, and the investors who build the most lasting wealth are usually the ones who treat tax planning as part of the investment plan, not as an afterthought.
If you're curious about how taxes fit into your overall financial picture, we'd love to help. Together, we can build a plan that brings your investments, retirement income, and long-term goals together in a tax-smart way.
CLICK HERE to make an appointment.