What is 'Tax Efficiency'

Tax efficiency is an attempt to minimize tax liability when given many different financial decisions. There are a variety of ways to obtain tax efficiency, including selecting tax efficient vehicles such as many exchange traded funds (ETFs) and municipal bonds, locating assets in the accounts such as Traditional or Roth IRAs and offsetting taxable capital gains with capital losses.

Other options to reduce tax liability include tax-efficient mutual funds, irrevocable trusts and tax-exempt commercial paper.

BREAKING DOWN 'Tax Efficiency'

Choosing the best tax-efficient investment can be a daunting task for those with little knowledge of the different types of products available. The best decision may be to contact a financial professional to determine if there is a way for you to make your investments more tax efficient.

RELATED TERMS
  1. Tax-Efficient Fund

    A mutual fund in which structure and operations are based on ...
  2. Tax Planning

    Logical analysis of a financial situation or plan from a tax ...
  3. Tax Liability

    The total amount of tax that an entity is legally obligated to ...
  4. Tax Exempt

    To be free from, or not subject to, taxation by regulators or ...
  5. Tax Base

    The assessed value of a set of assets, investments or income ...
  6. Net Of Tax

    An accounting figure that has been adjusted for the effects of ...
Related Articles
  1. Managing Wealth

    A Beginner’s Guide To Tax-Efficient Investing

    Tax-efficiency is a measure of how much of an investment’s return remains after taxes are paid.
  2. Taxes

    A Beginner's Guide to Tax-Efficient Investing

    Find out how to manage your portfolio to minimize your tax burden.
  3. Financial Advisor

    Tax-Efficient Investing: Keep More Earned Money

    You can improve investment returns by applying year-round strategies to minimize your tax burden. Here are a few tips.
  4. Investing

    How Mutual Funds Are Taxed in the U.S.

    A look at how mutual funds are taxed and how investors can be more tax efficient.
  5. Investing

    How Tax-Efficient Is Your Mutual Fund?

    Learn about factors that influence the tax-efficiency of your mutual fund, how income from your investment is taxed and what to look for when choosing a fund.
  6. Financial Advisor

    How to Dodge Big Tax Hits on Your Portfolio

    An investment plan that helps clients minimize related tax hits adds even more value to an already well-thought out strategy. Here are some tips.
  7. Financial Advisor

    Tax Efficient Strategies for Mutual Funds

    Before you sell mutual fund shares, consider these tax strategies first.
  8. Taxes

    7 Ways to Create a Tax-Efficient Portfolio

    Taxes may be a necessary evil, but that doesn't mean they can't be reduced. Here's a host of smart moves today's investors can make.
  9. Taxes

    Tax Haven Vs. Tax Shelters: Is There a Difference?

    Learn about the difference between tax havens and tax shelters, and how both are used to reduce tax liability or avoid paying taxes altogether.
  10. Taxes

    What You Need To Know About Capital Gains And Taxes

    Find out how your profits are taxed and what to consider when making investment decisions.
RELATED FAQS
  1. In what ways are ETFs more tax efficient than mutual funds?

    Compare mutual funds and exchange-traded funds to find out which one offers the most advantageous tax position for investors ... Read Answer >>
  2. What are some ways to minimize tax liability?

    Learn what tax strategies are available to individuals and business owners that may allow for a reduction in tax liability ... Read Answer >>
  3. How are you taxed after selling a mutual fund in a Roth IRA?

    Discover how investors are taxed after selling a mutual fund in a Roth IRA, and determine if this is useful to your financial ... Read Answer >>
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center