Most investors don’t realize they’re overpaying the IRS until it’s too late. By then, the damage is done. The check is mailed. The capital is gone.
And it’s not just a rounding error—it’s 20–30% of your annual investment gains evaporating. Every year. Compound that over decades, and you’re not just donating to the Treasury. You’re funding someone else’s retirement.
This isn’t an accident. It’s by design.
The investment industry is wired for pre-tax performance. Your advisor talks about alpha. Your fund manager obsesses over benchmarks. But nobody talks about what really matters: after-tax wealth.
Let’s fix that.
The Unseen Tax Drain
Start with the basics.
Tax loss harvesting is a strategy that helps investors reduce their taxable income by selling investments at a loss to offset capital gains. This can lower tax liability and improve after-tax returns while allowing investors to reinvest in similar assets to maintain their portfolio strategy.
Capital Gains Tax Rates 2024: Here’s What You’ll Owe On Your Investment Profits breaks it down: in 2024, 512,000 U.S. taxpayers paid $18.8 billion in capital gains tax…averaging $36,700 per filer.
High earners? The SOI Tax Stats - Individual Income Tax Returns shows the top 1% faced a 23.8% effective rate on long-term gains, plus state taxes.
That’s the leak. Now let’s look at the pipe.
How the System is Built to Bleed You
The tax code doesn’t reward effort. It punishes behavior. And most investors don’t realize how often they trip the wire.
- Short-Term Gains: Sell within 12 months and you’re hit with up to 37% federal tax—plus state. This is Wall Street’s churn tax, and the house loves it.
- Bond Interest: Ordinary income tax. Often north of 40%. “Safe” just means slow death.
- Dividends: Up to 23.8% vanishes—even if reinvested. Dividend compounding? Not if Uncle Sam’s skimming.
- No Loss Harvesting: Most investors let losing positions linger until they’re worthless—or sell gains without offsetting losses. That’s charity, not strategy.
These aren’t bugs. They’re features. Features that transfer wealth from the inattentive to the informed.
The Guardian calls it the “silent tax trap.” We call it a fixable problem.
Where Wall Street Gets It Wrong
Most portfolios are designed to win headlines, not keep wealth.
Let’s break down the four dumbest mainstream mistakes:
1. Churn and Burn
Active mutual funds and high-turnover strategies generate short-term gains like it’s a sport. The result? Bloomberg reports a 1.5% annual after-tax performance drag. And that’s before fees.
2. Tax-Insensitive Allocation
Holding REITs or taxable bonds in a brokerage account is asking for trouble. These should be in IRAs or tax-deferred wrappers. But most advisors don’t look past model portfolios.
3. Ignoring Losses
Volatility is a gift—if you know how to harvest it. But most investors panic in a drawdown and miss the opportunity. This oversight costs billions in foregone tax offsets annually.
4. Greedy Exits
Selling after a six-month run instead of waiting for the long-term capital gains threshold is one of the most common sins. That’s a 15–20% tax delta just for being impatient.
Wall Street rewards activity. But the tax code rewards discipline. That misalignment is your edge—if you use it.
Our Contrarian Fix: Weaponize the Tax Code
At Lumida, we don’t play defense with taxes. We play offense.
Our tax-aware approach isn’t window dressing. It’s embedded in how we build, manage, and rotate portfolios. Because we know the IRS doesn’t care if you beat the market—they only care if you realize gains.
Here’s how we stay ahead:
Harvest Losses All Year, Not Just December
We track portfolio basis and capital gains in real-time. We don’t wait for the holiday rush. We sell losers, book the loss, and rotate into proxy names to stay in the game. Studies show this adds 1–2% in annual alpha. That compounds into millions.
Asset Location, Not Just Allocation
Bonds in IRAs. Private credit in tax-deferred wrappers. Growth stocks in taxable accounts where deferral is king. We structure portfolios like real estate investors structure buildings: optimized for depreciation and longevity.
Hold for Long-Term Capital Gains
The difference between a 37% short-term rate and a 15% long-term rate is a permanent advantage. It’s not just about being “patient.” It’s about making patience your tax edge.
Private Market Playbook
We use private real estate, private credit, and structured notes that defer or offset taxes entirely. Crypto has unique tax characteristics too—ignored by most advisors. Not here.
Tailored Tax Shields
We build portfolios specific to your income bracket, state of residence, and liquidity horizon. One-size-fits-all is code for “we didn’t think about it.”
Tax Planning Isn’t a Year-End Exercise
If you’re reviewing your tax strategy in December, you’re already behind.
Here’s the brutal truth: Your 2025 tax bill is set by the decisions you make in 2024. That means now—not later—is when the real planning happens.
And this isn’t just about minimizing your bill this year. It’s about compounding gains for the next decade with less drag, more deferral, and smarter sequencing.
Tax alpha is one of the few legal edges still available to sophisticated investors. Don’t let it go to waste.
Who This Works For
Our strategies shine at $1MM+ in assets, and hit their stride at $5MM+.
Above $25MM? You unlock tools like private placement life insurance (PPLI), grantor trusts, and charitable lead annuities. These require nuance, but when done right, they turn taxes into a rounding error.
If you’re building generational wealth, taxes are the single largest liability you control. We treat them that way.
Act Now—Because Taxes Don’t Wait
You can’t backdate a good tax strategy.
That’s why we built the Tax Shield page. It breaks down specific tactics and next steps. Whether you’re looking to shield capital gains, restructure an estate, or simply stop the bleeding, we can help.
The herd pays. The contrarian keeps more.
Want to see how much we can save you? Schedule a call with our team today.