Advisor Strategies to Manage Capital Gains for Clients

Incorporating tax planning into your suite of services could help you attract new clients and provide even more value to the ones you already serve. Proper tax planning allows your clients to hold on to more of their wealth, which may be important to them if they want to preserve a financial legacy for future generations. However, optimizing client portfolios for maximum tax efficiency requires a plan for managing capital gains.

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Managing Capital Gains: 5 Effective Strategies

Just under half of advisors, 47%, offer tax planning services, according to a 2025 Cerulli Edge report. ¹ If you’re among that number and your clients have capital gains, that’s a positive sign that your investment advice is paying off. It’s also an indicator that you need to have some go-to strategies for making the most of those gains.

Here are five ways you might approach managing capital gains for your clients.

1. Leverage Tax-Advantaged Accounts

Asset location impacts when an investor must pay taxes on capital gains. Tax-advantaged accounts, such as a 401(k) or traditional IRA, allow clients to defer paying capital gains tax on their investments until they make withdrawals.

Here are some strategies for managing capital gains across retirement and non-retirement accounts:

• Review client portfolios to understand where they keep their assets, which accounts generate the most capital gains and the tax profile of each account.
• Encourage clients to prioritize maxing out contributions to tax-advantaged accounts, ahead of a taxable brokerage account or Roth accounts.
• Consider the client’s asset allocation to identify opportunities to move tax-inefficient investments into tax-advantaged vehicles.

Remember to consider all of a client’s assets, including those held away and tax-advantaged vehicles that are not retirement-specific.

For example, your clients may have access to a Health Savings Account (HSA). HSAs offer triple tax benefits: tax-deductible contributions, tax-deferred growth and tax-free withdrawals for eligible healthcare expenses. Contributions can be invested in the same manner as contributions to a 401(k), so your plan for managing capital gains should include HSAs if your clients have them.

2. Harvest Losses Periodically

Tax-loss harvesting is critical for managing capital gains and helping clients minimize tax liability. Clients can use losses to offset capital gains, and up to $3,000 in ordinary income for the year. Regular monitoring of client portfolios is key when it comes to timely loss harvesting.

Automation can simplify the process, so you don’t miss any opportunities to harvest losses for your clients. Portfolio management or financial planning software can help you to:

• Establish specific thresholds for losses and gains to trigger harvesting automatically.
• Track harvesting activity to avoid violations of the wash-sale rule, which could negate any benefit your clients might receive from harvesting losses.
• Identify investments that may be suitable for loss harvesting, and generate a list of substantially identical investments to avoid.
• Execute trades using the appropriate cost-basis method to give investors the most benefit from loss harvesting.

In addition to these functions, your software may create a paper trail that you can show to clients to help them understand the reasoning behind each trade.

3. Reinvest Appropriately

Successfully managing capital gains requires planning for what your clients should do with them as they accumulate. For some clients, automatic reinvestment may be the answer. Reinvesting gains in new shares is a way to grow their portfolio without requiring them to invest additional dollars. Reinvesting enables clients to continue capitalizing on the power of compounding interest for the long term.

Other clients may prefer to withdraw their gains in cash if they rely on their portfolios for income. Alternatively, they may decide to reinvest, but use the gains to purchase a different investment. For example, a client who’s entering their 50s may be ready to begin moving some of their assets out of stocks and into bonds.

You might talk through each option with your clients when you sit down for your annual portfolio review. A portfolio visualizer tool could help show clients potential outcomes, based on how they prefer to put their gains to work.

4. Consider Donor-Advised Funds (DAFs)

Clients with philanthropic tendencies may benefit from contributing to donor-advised funds. Here’s how a donor-advised fund can be utilized for managing capital gains:

• Clients donate appreciated assets held for more than one year directly to a DAF.
• Donated assets grow tax-free while held within the fund.
• The DAF can then sell those assets on a tax-free basis, eliminating capital gains tax on appreciation for the client.
• The client benefits from an immediate tax deduction following their contribution; the deduction is based on the fair market value of the donated asset.

Donor-advised funds can fulfill several needs. Clients may realize a larger tax benefit than they would by making donations directly to eligible charities. The assets they donate continue to grow in value while they’re held by the DAF, which increases the size of their charitable impact footprint. Clients may also appreciate being able to donate more complex assets, such as cryptocurrency and other stock alternatives.

Managing donor-advised funds yourself may increase your firm’s assets under management. You can also provide clients with a better experience if they know they can come to you for help in executing their charitable giving goals.

5. Think Long-Term

Several long-term strategies may prove helpful in managing capital gains for clients who are concerned about tax impacts. How you proceed can depend on the client’s age, objectives and the composition of their portfolios.

Here are some ways you might potentially approach capital gains management for the long term:

• Remind clients of the one-year rule: Long-term capital gains tax applies to assets held for more than one year. Talk to your clients about timeliness and how to plan the sale of assets so they qualify for the more favorable long-term capital gains tax rate.
• Explain the benefits of a Roth conversion: Converting a traditional IRA to a Roth account can allow clients to make tax-free withdrawals in retirement. Clients would need to pay taxes on gains at the time of the conversion, but this is an indirect way to offset future capital gains tax on growth.
• Talk to real estate investors about a 1031 exchange: A 1031 exchange allows capital gains tax to be deferred when one property is sold and the proceeds are used to buy another property of like kind. If you have clients who own real estate investments, walk them through how they could use this approach to delay (but not avoid) capital gains tax on property sales.

If you’re expanding your services to include tax planning, consider working with a digital marketing tool to connect with new leads. SmartAsset Advisor Marketing Platform (AMP) uses a holistic approach to help clients match with leads who are ready to work with a financial professional. Schedule a free demo to learn more about how it works.

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Bottom Line

Managing capital gains for clients effectively often requires a multi-layered approach, as each client’s financial picture may look quite different. Utilizing software tools, conducting regular portfolio reviews and talking to your clients about what they would like their tax picture to look like can help you develop the right strategies to meet their needs.

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Tips for Growing Your Advisory Business

• Search engine optimization, social media and digital ads can help you attract new clients and increase your brand visibility. Working with an advisor marketing platform is another way to boost your firm’s profile. SmartAsset AMP (Advisor Marketing Platform) is a holistic marketing service that financial advisors can use for client lead generation and automated marketing. Sign up for a free demo to explore how SmartAsset AMP can help you expand your practice’s marketing operation. Get started today.
• Adding a tax planning software to your tech stack can help you add even more value for your clients. Tax planning software can assist you with scenario analysis, risk management and estate planning as you construct client portfolios.

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