Investing is one of the best ways to build long term wealth but many investors overlook how taxes can quietly erode their returns. Even well-performing portfolios can lose ground if taxes aren’t part of the strategy. The key isn’t just what you invest in, but how and when you sell. With thoughtful planning, you can minimize the tax bite and keep more of your profits working for you.
At BrilTax Advisors, we help clients make confident financial decisions by aligning their investment activity with their overall tax plan. Here’s how you can take a more strategic approach when realizing investment gains.
Understand What “Cost Basis” Really Means
Your cost basis is the foundation for calculating profit or loss on an investment. Think of it as your “starting point.” It’s generally what you paid for the stock, bond, or fund adjusted for factors such as reinvested dividends, commissions, or corporate actions.
When you sell, your taxable gain is simply the sale price minus your cost basis. Simple enough on paper but in practice, things can get complicated.
If you buy shares at different times and prices, each purchase has its own cost basis. When you sell only part of your holdings, the IRS allows several methods to determine which shares are sold first and your choice can significantly affect your tax bill.
Choose the Right Shares to Sell
When you sell part of a position, you’re not just deciding how much to sell, but which shares to sell. Brokerages typically default to FIFO (first in, first out) meaning your oldest shares (often with the largest gains) are sold first. That may lead to paying more tax than necessary.
A smarter option is the “specific identification” method. This approach allows you to pick exactly which shares are sold, for example, those purchased most recently or those with the highest cost basis. By being intentional about which lots you sell, you can better control how much of your gain becomes taxable.
Many major brokers such as Fidelity, Schwab, and Vanguard allow you to make this selection. If you’re not sure what your account’s default setting is, it’s worth checking with a tax advisor before placing a trade.
Leverage Losses Strategically
Not all investment outcomes are positive but even losses can be turned into tax advantages. When you sell an investment for less than what you paid, the resulting capital loss can offset other capital gains.
If your losses exceed your gains, you can deduct up to $3,000 of the excess against your regular income each year, and carry forward the remainder to future tax years. This is often referred to as tax-loss harvesting, and it’s one of the most effective ways to manage investment taxes over time.
However, be cautious of the wash-sale rule, which disallows a loss deduction if you buy the same or a substantially identical investment within 30 days before or after selling it.
Time Your Sales for the Best Tax Rate
How long you hold an investment determines whether your gain is taxed as short-term or long-term.
- Short-term gains (on assets held one year or less) are taxed at ordinary income rates, which can reach as high as 37%.
- Long-term gains (on assets held more than one year) benefit from lower rates typically 0%, 15%, or 20%, depending on your income level.
For some investors, careful timing can even eliminate tax on gains entirely. In 2025, taxpayers with taxable income under approximately $97,000 (married filing jointly) or $48,000 (single) may qualify for the 0% long-term capital gains rate. Coordinating your investment sales with a tax advisor can help you stay within these thresholds.
Don’t Overlook Reinvested Dividends
Many investors automatically reinvest dividends back into the same fund or stock. While this helps grow your portfolio, it also creates new “mini purchases” with their own cost basis. When you eventually sell, those reinvested amounts reduce your taxable gain.
If you’re unsure whether your cost basis includes reinvested dividends, it’s a good idea to review your brokerage statements or discuss it with a tax professional.
Keep Good Records
Events like marriage, divorce, or inheritance can make it tricky to determine accurate cost basis information. While brokers are required to maintain cost-basis data for most assets purchased, however, older investments may not be fully documented. Sorting this out before a sale is much easier than trying to fix it afterward.
The Bottom Line
Selling investments is more than just a portfolio decision, it’s a tax decision. A bit of planning can mean the difference between keeping your profits or giving a large portion of them away in taxes.
At BrilTax Advisors, we specialize in helping clients minimize taxes through investment tax planning, capital gains optimization, and proactive year-end strategies. Whether you’re selling long-held stocks, rebalancing your portfolio, or managing equity compensation, our team can help you make the most tax-efficient decisions.
Ready to make smarter moves with your investments?
Contact BrilTax Advisors today to schedule a consultation and discover how professional tax planning can help you keep more of what you earn.
