Taxes can significantly reduce your portfolio’s value. Dividends and interest income from taxable portfolios and distributions from 401(k) plans and individual retirement accounts are taxed in the year received, at ordinary income tax rates of up to 35%. Taxes are not paid on unrealized capital gains in taxable accounts. When the asset is sold from a taxable account, however, you must pay taxes on those capital gains, at a maximum capital gains tax rate of 15% (5% for individuals in the 10% or 15% tax bracket) for investments held over one year. Capital gains on investments held for one year or less are short-term capital gains and are taxed at ordinary income tax rates.

Using strategies that defer the payment of taxes for as long as possible can make a substantial difference in your portfolio’s ultimate size. Consider the following tax-efficient strategies:

• Minimize portfolio turnover. Carefully evaluate your investment choices, selecting those you’ll be comfortable owning for years. That way, you can let any realized capital gains grow for many years.

• Place investments that generate ordinary income or that you want to trade frequently in your tax-deferred accounts. Since income and realized capital gains inside tax-deferred accounts aren’t taxed until withdrawn, you defer paying taxes on that income. Keep in mind that withdrawals may be subject to a 10% federal penalty if made prior to age 59 1/2.

• Analyze the tax consequences before rebalancing your portfolio. Portfolio rebalancing is a taxable event that may result in a taxable gain or loss. You should generally avoid selling investments for reasons other than poor performance. You can bring your asset allocation back in line through other means. For instance, when adding investments to your portfolio, only purchase those that are underweighted in your portfolio. Reinvest interest, dividends, and capital gains in investments that are underweighted. Any withdrawals can be made from overweighted investments. Or rebalance through your tax-deferred accounts, which typically won’t result in current tax liabilities.

• Utilize losses to offset capital gains. Selling investments at a loss can offset capital gains for that year, reducing your total tax liability. Excess losses may be used to offset up to $3,000 of ordinary income and the unused portion may be carried forward indefinitely. If you still want to own that investment, you can purchase it 30 days before or after selling it. That way, you will not be subject to the wash sale rules, so your loss will be tax deductible.