5 Steps that May Reduce Taxes on Your Income and Portfolio

Achieving your investment goals isn’t just about the amount you invest and the returns it generates. Reducing tax liabilities in your portfolio can also play a key role in helping you build wealth over the long run. As you review your income and portfolio, consider these steps to help reduce taxes on your investments: 

1.   Employ Tax-Loss Harvesting

Tax-loss harvesting is a tax-efficient investing strategy that can help minimize the amount of capital gains taxes you must pay on your investments. Capital gains are generally the profits you realize when you sell an investment for more than you paid for it, and capital losses are generally the losses you realize when you sell an investment for less than you paid for it. “Harvesting” or selling investments at a loss allows you to offset capital gains.

If you wish to maintain similar portfolio exposure while avoiding a “wash sale” (which would disallow the current use of the loss), you can sell the original holding, realize the loss, then buy back the same or substantially similar security after a minimum of 31 days.

Using Morgan Stanley’s Total Tax 365, your Financial Advisor can help you “harvest” any losses year-round to offset capital gains. In addition, Morgan Stanley’s sophisticated tax-management platform lets you design your own tax-loss harvesting experience. For instance, you can select the loss-harvesting frequency, choose your loss-targeting approach or customize with our opportunistic tax-loss harvest feature that systematically identifies losses to capture throughout the year.

2. Carry Your Losses Forward

Another strategy to consider is carrying over capital losses from one year to offset capital gains in another year. If you have offset all your capital gains and still have capital losses remaining, you can potentially apply up to $3,000 of capital losses to offset your ordinary income, further reducing this year’s tax liability. If you have additional losses that aren’t captured, carry those capital losses forward next year. There is no limit to how long you can carry capital losses forward into the future across your lifetime.  

3. Minimize Taxes on Foreign Investments

Do you hold international securities in your investment accounts?

Investors that own international securities are often subject to withholding taxes by foreign governments on investment income (dividends and interest). If double taxation treaties exist between the country where you reside and the location of the security issuer, you may be entitled to reclaim all or some of these foreign taxes, but you must do so within the statute of limitations.

In addition, you may credit certain foreign tax amounts against United States federal income taxes You should discuss this with your tax advisor, and talk to your Morgan Stanley Financial Advisor about foreign tax reclaim services.

4. Maximize Your Health Savings Account Savings

If you are enrolled in a qualifying high-deductible health plan (HDHP), you may be eligible to contribute to a Health Savings Account (HSA). The funds you contribute to an HSA are generally tax deductible if directly made by you.  Depending on your employer, your employer may also contribute to your HSA with a pre-tax salary reduction.

Any earnings in HSA accounts generally grow income tax-free, and distributions may be income tax-free if used to pay for qualified medical expenses like medication, doctor’s fees and X-Rays. State and local tax treatment may vary.

HSA funds remain in your account from year-to-year if they aren’t spent, and you retain ownership of the account, even if you leave your job or switch health plans.

For 2025, contribution limits rise to $4,300 for an HSA for individual coverage or up to $8,5500 for family coverage. If you have more than one HSA account, your total contributions to all HSA accounts cannot exceed these limits. There is also a catch-up contribution limit of $1,000 for those who are 55 or older at any time during the calendar year.

5. Take Advantage of Higher Estate and Gift Tax Exemption

The 2025 federal estate and gift tax exemption is $13.99 million per individual or $27.98 million for a married couple.

How a Financial Professional Can Help

With Total Tax 365, your Financial Advisor can integrate tax aware solutions, including Tax Management Services, into your investment plan to help you minimize the impact of taxes in your portfolio.

In addition, if you have complex tax planning needs, your Morgan Stanley Financial Advisor can connect you to experienced tax professionals from U.S.-based providers across the country to help ensure your tax strategy is optimized.

Connect with your Morgan Stanley Financial Advisor to learn more.