Tax season surprise? Take steps to reshape your tax strategy.

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If tax season brings an unwelcome surprise this year, it may be time to evaluate your tax strategy for your investment plan. Here’s how.

As you get through tax season this year, you may find yourself owing more than expected. If so, you may want to revisit your tax strategies. Doing so now can help put you in a better position throughout 2023 and could help prevent you from facing unexpected surprises when tax season rolls around again. These steps can help.

Review your investment portfolio for tax efficiency

    1. Review the location of your investments for tax efficiency.
      • Do you have investments in taxable accounts that distribute nonqualified dividends or taxable interest?
      • Do you have actively managed funds that are generating significant capital gains?
      • Could these investments be held in tax-advantaged accounts instead?
    2. Evaluate the tax impact of the types of investments you select for your taxable accounts.
      • Compare taxable bonds or bond funds with tax-exempt bonds or bond funds. Determine which are better for your situation.
      • Work with a financial advisor to identify investments that will distribute primarily qualified dividends. Qualified dividends are taxed at a lower rate than nonqualified dividends.
      • Mutual funds can distribute capital gains at year-end, delivering income that may be difficult to predict. If this is a concern for you, review other investment options that could offer more control over the recognition of capital gains.
    3. Identify any unexpected taxable events that occurred in 2022. Determine if they are going to reoccur in 2023 or future years and actions you may want to take to mitigate that impact.

 Formulate your overall tax plan

Your advisors have resources to assist you with your tax strategies. Work with both your tax advisor and your financial advisor to build your overall plan.

First, schedule an appointment with your tax professional to discuss your situation and review your tax projection.

Then, follow up with your financial advisor to evaluate your portfolio strategies and any investment changes that may help reduce your tax bill. If you’re nearing retirement, a financial advisor can also make income projections to help you understand the potential tax implications of your retirement income strategy.

Wells Fargo and Company and its Affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.