For Investors

Investment income is taxed on a different schedule from wages: long-term gains and qualified dividends at 0%, 15% or 20%; short-term gains and interest at the ordinary brackets; and a 3.8% surcharge for higher earners on all of it. The differences between those rates, and the fact that a gain is taxed only when you choose to sell, are what make investors the demographic with the most control over their own tax.

These ten therapies are ordered by how often they apply. The first three cost nothing and work for anyone with a taxable account. The last three are for specific situations (employer stock, a startup, a large estate) and are worth a great deal when they fit. Full articles are linked; the contraindications at the end are the holding periods and wash rules that undo a therapy applied carelessly.

1. Harvest Gains in the 0% Bracket

The IRS calls it: §1(h)(1)(B)

Dose: long-term gains and qualified dividends are taxed at 0% to the extent taxable income stays under $49,450 single / $98,900 joint in 2026. Sell the appreciated fund, buy it back the same day (no wash rule for gains), and the basis resets to today’s price at no cost.

Who is in the bracket: retirees before Social Security and RMDs, a couple with one income in a gap year, anyone with a large standard deduction and modest wages. A couple with $60,000 of other income has about $38,900 of room; harvesting $38,900 of gain each year for five years resets $195,000 of basis for free. Colorado taxes the gain at 4.40%, which is the only cost. Full article: Capital Gains Tax.

2. Harvest Losses, Without the Wash

The IRS calls it: §1211(b) and §1091

Dose: realized losses offset realized gains without limit, then $3,000 of ordinary income a year; the rest carries forward indefinitely. Replace the sold position with something similar but not “substantially identical,” or wait 31 days.

Harvest losses in down markets, in every account you control, including the one at the broker who doesn’t know about the other; the wash rule reaches across accounts and into IRAs, and a repurchase in an IRA kills the loss permanently. Turn off dividend reinvestment on a position you are about to sell. A loss carryover from 2008 is still good if someone kept track; bring the old returns. Full article: Reading Your Brokerage 1099.

3. Hold Past a Year

The IRS calls it: §1222

Dose: a gain on an asset held more than one year is taxed at 15% (or 0% or 20%); held one year or less, at your ordinary rate, up to 37%. One day can be worth 22 points.

Check the acquisition date before selling anything with a large gain; for shares bought in lots, sell the oldest lots (specific identification, told to the broker before settlement) or the highest-basis lots, depending on the goal. Inherited property is long-term from day one. Gifted property takes the giver’s holding period. Mutual fund capital gain distributions are long-term no matter how long you’ve held the fund.

4. Put Each Asset in the Right Account

The planners call it: asset location

Dose: taxable bonds, REITs, actively managed funds that distribute gains, and anything producing ordinary income go in the IRA or 401(k); index funds, individual stocks held for growth, and municipal bonds go in the taxable account; the highest-growth assets go in the Roth.

The same portfolio, re-sorted among accounts, can cut the annual tax drag by a quarter to a half. Interest and REIT dividends are taxed at ordinary rates every year in a taxable account and not at all inside an IRA until withdrawal; an index fund in a taxable account defers nearly everything and gets the step-up at death. Treasuries in a taxable account at least escape Colorado’s 4.40%. The conversation belongs with the adviser, and most advisers will have it if asked.

5. Employer Stock in a 401(k): The NUA Election

The IRS calls it: §402(e)(4), net unrealized appreciation

Dose: on a lump-sum distribution of the whole plan after separation, age 59½, death or disability, take the employer stock in kind to a taxable account: pay ordinary income tax on the plan’s cost basis in the shares only; the appreciation is taxed at long-term capital gains rates when you eventually sell, and is never subject to the 3.8% surtax or RMDs.

An employee with $400,000 of company stock in the 401(k) that the plan bought for $60,000 pays ordinary tax on $60,000 now and 15% to 20% on $340,000 later, instead of ordinary tax on $400,000 as it comes out of an IRA over decades. The rest of the plan rolls to an IRA normally. The election is lost if the stock is rolled to the IRA first; the plan administrator must handle it as a lump-sum distribution in one tax year. This is one of the few decisions in retirement that cannot be undone, and it is worth a meeting before the paperwork is signed.

6. ISOs, NSOs and RSUs

The IRS calls them: §422, §83, and §83(b)

Dose: RSUs: income at vesting at full value, with 22% withholding that is usually too low, so sell at vest or add withholding. NSOs: income at exercise on the spread. ISOs: no regular tax at exercise, but the spread is an AMT preference, and a sale more than two years from grant and one year from exercise is all long-term gain. Restricted stock in a startup: the §83(b) election within 30 days of grant taxes the shares at today’s (low) value and starts the capital-gains clock.

The ISO trap is exercising in December at a high price, holding for the capital-gains treatment, and watching the stock fall before the AMT bill arrives in April on a spread that no longer exists; exercise early in the year, so a decline can be cured by a same-year sale (a disqualifying disposition that eliminates the AMT). The RSU trap is treating 22% withholding as the tax when the marginal rate is 32% or 35%. The 83(b) trap is missing the 30 days; there is no relief. Full article: AMT, in the phase-outs page.

7. Give the Stock, Not the Cash

The IRS calls it: §170(b)(1)(C) and §170(e)

Dose: donate shares held more than a year directly to the charity or a donor-advised fund: deduct the full fair market value (up to 30% of AGI), and the built-in gain is never taxed by anyone. Then buy the shares back with the cash you would have given.

A $10,000 gift of stock with $7,000 of gain saves the 15% to 23.8% on the $7,000 in addition to the deduction, about $1,000 to $1,700 more than giving cash. A donor-advised fund takes the shares in one transaction, gives the deduction this year (useful for bunching), and lets the giving happen on its own schedule. Pair with therapy 1 for assets that have gone up; give the winners, sell the losers. Full article: Charitable Giving: The Federal Rules.

8. Qualified Small Business Stock

The IRS calls it: §1202, as expanded by the 2025 act

Dose: gain on the sale of stock in a qualifying C corporation (acquired at original issue, active business, assets under $75 million at issuance for post-July 4, 2025 stock) is excluded from tax: 100% after five years, and under the 2025 act 50% after three years and 75% after four; up to the greater of $15 million or 10 times basis per issuer for new stock (verify the tiered exclusion and new caps).

For a founder, early employee or angel investor in a Colorado startup, this is the largest exclusion in the code and it is frequently lost by converting the company to an LLC, by exceeding the asset test at issuance, or by not holding long enough. The 2025 act made it more generous and shortened the wait; an investor with eligible stock should know the date the five years run and not sell a day earlier. Colorado conforms through federal taxable income.

9. Stay Under the 3.8% Line, or Move Income Out From Under It

The IRS calls it: §1411, the net investment income tax

Dose: 3.8% on interest, dividends, gains, rents and royalties to the extent modified AGI exceeds $200,000 single / $250,000 joint, thresholds that have not moved since 2013. Therapies: spread a large sale over two years, use an installment sale, harvest losses in the same year as the gain, fund the retirement plans that reduce MAGI, convert to Roth in years that are under the line, and hold municipal bonds, whose interest is outside both the tax and the threshold.

The threshold is a cliff at the margin: a couple at $245,000 who recognize a $60,000 gain pay 3.8% on $55,000 of it. The surtax does not apply to retirement plan distributions (which still raise MAGI) or to income from a business in which you materially participate. A real estate professional’s rental income can escape it; see the real estate professional page. Full article: NIIT, in the phase-outs page.

10. Don’t Sell What Will Be Stepped Up

The IRS calls it: §1014

Dose: appreciated assets held until death pass to heirs at their date-of-death value; the gain is never taxed. An investor in their late seventies with a $400,000 gain in a stock bought in 1990 should think hard before selling it for any reason other than need; the heirs can sell it the week after with no tax.

The inverse is also a therapy: sell the losers before death, because a loss position steps down and the loss vanishes. And give the winners to charity during life, which gets the deduction, or to heirs at death, which gets the step-up; give the cash and the high-basis positions to the children now. With the estate exemption at $15 million, the step-up is worth more to almost every family than any lifetime gifting plan. Full article: Inherited Property and the Step-Up in Basis.