Plan for 3.8 percent investment tax
Wealthier taxpayers faced several new taxes in 2013. They're still on the books for 2014. This includes the 3.8 percent net investment tax, which was created to help fund health care reform.
Rey Santodomingo, CFA and director of investment strategy, tax managed equities at Parametric Portfolio Associates in Seattle, says affected taxpayers -- single filers with modified adjusted gross income of $200,000 or more and joint filers making $250,000 or more -- now must be even more aware of their holdings' tax efficiency.
"Evaluate your investments on an after-tax basis," he says. "Place less tax-efficient investments in tax-deferred accounts. Also look for opportunities to defer taxes even longer by employing tactics like loss harvesting."
But don't overreact.
Don't, for example, move away from dividends just because of the new tax. "It could be a case of the tax tail wagging the investment dog," Santodomingo says. "De-emphasized dividends could mean you take on added risk that might not be appropriate for your portfolio."