Two Weeks to Go: Tax‑Smart Rebalancing Moves to Close Out the Year

With about two weeks left in the tax year, investors still have time to rebalance portfolios in ways that manage risk and make smarter use of the tax code. Thoughtful, tax‑aware rebalancing can help keep portfolios aligned with long‑term targets while potentially reducing current‑year tax liability.​

Start with your target weights

Rebalancing begins by comparing your current allocation to your target mix and identifying positions that have grown significantly above their intended weights. Selling a portion of these “winners” can bring risk back in line, especially after a year of strong market moves. Rather than making drastic changes, many investors use thresholds—such as a 5 percentage‑point drift—to decide when a position has become a natural candidate for trimming.​

Manage gains in taxable accounts

In taxable accounts, every sale has a potential tax impact, so it is important to look at the embedded gains in each position before trading. Realizing smaller gains across multiple holdings may be preferable to triggering one large gain, especially if it keeps you in a lower capital‑gains bracket. When possible, prioritize selling long‑term positions, since long‑term capital gains are typically taxed at lower rates than short‑term gains.​

Pair gains with losses

If you have underperforming investments, realized losses from these positions can help offset gains and reduce your overall tax bill, a technique known as tax‑loss harvesting. By selling securities at a loss and pairing those losses with gains from rebalancing, you may be able to keep your desired allocation while lowering current‑year taxes or even offsetting up to a limited amount of ordinary income. Be careful to avoid “wash sales,” which occur if you buy the same or substantially identical security within 30 days before or after selling at a loss, as this can disallow the deduction.​

Use tax‑advantaged accounts strategically

Investors who hold both taxable and tax‑advantaged accounts should view their household portfolio as a whole when deciding where to rebalance. Because trades inside IRAs, 401(k)s, HSAs, and similar accounts generally do not generate current capital‑gains taxes, a substantial portion of rebalancing can often be done in these accounts without immediate tax consequences. This approach allows you to adjust your overall risk profile while reserving taxable‑account trades for the most tax‑efficient moves—such as harvesting losses or trimming positions with relatively modest gains.​

Coordinate cash flows and future plans

Beyond outright sales, investors can use new contributions, dividend and capital‑gain distributions, and required minimum distributions to move their portfolios back toward target weights with fewer taxable transactions. Directing fresh cash into underweighted areas and turning off automatic reinvestment in overweight positions can gradually rebalance the portfolio while maintaining tax awareness. Any year‑end moves should still reflect forward‑looking conviction about each investment and fit within a long‑term financial plan, rather than being driven solely by tax considerations.​

Disclosure: This material is for informational purposes only and is not intended as tax, legal, or investment advice. Tax laws are subject to change, and their effects vary based on individual circumstances. Investors should consult a qualified tax professional or financial advisor before making any rebalancing or tax‑related decisions.

Sources:
Vanguard – “Tax‑loss harvesting explained.” https://investor.vanguard.com/investor-resources-education/taxes/offset-gains-loss-harvesting​
Fidelity – “What Is Rebalancing?” https://www.fidelity.com/learning-center/trading-investing/rebalance​
FP Wealth – “Tax-Efficient Portfolio Rebalancing Strategies.” https://www.fp-wealth.com/blog/tax-efficient-portfolio-rebalancing-strategies​
Lewis Group CPAs – “Tax Loss Harvesting & Portfolio Rebalancing: End-of-Year …” https://lewisgroupcpas.com/tax-loss-harvesting-portfolio-rebalancing/​
Langan Financial Group – “Tax-Efficient Investment Rebalancing Strategies for 2025.” https://langanfinancialgroup.com/tax-efficient-investment-rebalancing-strategies-for-2025/​
Charles Schwab – “Tax-Efficient Investing: Why is it Important?” https://www.schwab.com/learn/story/tax-efficient-investing-why-is-it-important​

‍