Tax Efficiency

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Tax efficiency is a strategy used by individuals and businesses to lower their tax responsibility legally. The goal is to pay the least amount in taxes possible. Individuals and businesses will open income-producing accounts that are tax-deferred as a means of doing so. In this article, we will take a look at why investors are looking for tax-efficient options and how our clients can increase the tax efficiency of their portfolios easily.

What is tax efficiency

Depending on where they are located in the world, high-earning investors and businesses are at even more risk since they are subject to capital gains tax on the investment they have sold for a profit. In addition, estate taxes make it hard to ensure that all of the savings you did for your family will reach your beneficiaries without being wiped out by the federal government. Also, it can be quite challenging to plan for the future due to ever-changing tax legislation. Saving on taxes is most successful when done with the guidance of a professional. Usually, it involves income-producing investments that are tax-deferred such as IRAs and 401(k) plans that are utilized for retirement. With these accounts, dividends and capital gains are reinvested into the accounts and continue to grow tax-deferred until the money is taken out. The strategies that work best, however, will depend on whether they are an individual or a business and how the income is made. Unfortunately, there is no handbook of strategies that will work for everyone, but there are services that we can offer that can guide you through the process. For example, our tax professional can look at your current portfolio and enhance your savings to ensure you aren’t paying unnecessary taxes because it’s not structured correctly. In the next portion of this article, we will look at some of the tax-efficient options utilized by some of our clients.

Tax-efficient investing strategies

Since every investor is unique, each will use different tax strategies to achieve their goals. For example, the tax plan of someone with a large family hoping to create an estate plan to pass down their wealth will be different from the investor trying to save for a lavish retirement. Let’s look at some of the ways our clients have lowered their tax responsibility. To create a unique plan based on your needs, our experts can help you explore these options and more.


A trust is a financial relationship where a person referred to as a trustor gives a trustee access to hold assets for the benefit of a third person, the beneficiary. People typically want to use a trust to provide asset protection, ensure the assets are distributed as decided by the trustor, and help individuals avoid or reduce inheritance or estate taxes. In addition, many of our clients will set up trusts outside of their home country to further their tax reductions.

Mutual Funds

A tax-efficient mutual fund is a great option to lessen tax liability for investors who don’t currently have tax-deferred investment accounts. These mutual funds are taxed at a lower rate than other mutual funds but also generate lower returns throw capital gains or dividends. ETFs are an example of a mutual fund that is taxed at a lower rate due to no interest income or dividends.

Insurance Plans

Investors utilize insurance plans to pay less in taxes when they are alive and after they pass away. Investors transfer assets to beneficiaries, free of income and estate tax. Insurance plans also offer growth of cash tax-deferred while in the policy.

Retirement Accounts

Retirement plans are some of the most popular options for tax efficiency, especially for our clients in the United States. Tax-deferred retirement plans include 401(k) plans and IRAs. A 401(k) is an account in which an investor places money where it will grow tax-free. The money is placed into investments before federal and state income tax is withheld, therefore lowering the taxable income of the account holder. The taxation begins at the time the finds are being withdrawn. Often, an investor’s employer offers these plans with the added benefit of matched funds being placed into the account. This account won’t completely erase an investor’s tax responsibility on this income, but it does lower since individuals are typically taxed less after retirement. Individual retirement accounts, or IRAs, are another great tax-deferred account option. Again, individuals can choose how the money will be invested, and it grows tax-deferred.

Investing Offshore

Investors shouldn’t limit themselves to their typical domestic investment options. Many of our clients have found that placing a fraction of their wealth offshore helps them not only save on taxes but can diversify their portfolio, which comes with many benefits. However, if you are a high-earning investor with assets primarily in the United States, you are missing out! Some clients even leave their home jurisdictions entirely to free themselves of burdensome tax responsibility. By changing which countries you are obligated to pay taxes to, you may be able to take advantage of significant tax breaks, especially if your home country taxes on income earned from a different country, like the United States.

Tax efficiency and Alpen Partners

If you are hoping to increase your tax efficiency, Alpen Partners can help. Our experts are familiar with global tax laws, making it easy to find the best investment for you. No matter why you are looking to re-examine your portfolio, our experts can guide you through the process of growing and protecting your wealth. We offer high-earning clients expert investment guidance, wealth management, family office, and personal financial services worldwide. Don’t lose out on the wealth you have worked hard for. Connect with an expert today!

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