Tax efficiency

Tax efficiency,

Definition of Tax efficiency:

  1. Tax efficiency is an attempt to minimize tax liability when given many different financial decisions. A financial decision is said to be tax-efficient if the tax outcome is lower than an alternative financial structure that achieves the same end.

  2. Feature of a financial instrument which permits its holder to establish or modify an investment position such that it attracts lower tax liability than other such instruments. Tax efficient instruments include tax-free bonds, tax-free money market accounts, and stocks (shares) which are held for more than a year (thus paying long-term, and not short-term, capital gains tax).

  3. Percentage of a pre-tax return realizable on a financial instrument (such as a bond, stock or share, unit) by a taxable investor after paying his or her tax liability.

  4. Tax efficiency refers to structuring an investment so that it receives the least possible taxation. There are a variety of ways to obtain tax efficiency when investing in the public markets.

How to use Tax efficiency in a sentence?

  1. Tax efficiency refers to structuring an investment or a financial plan so that the least possible taxation occurs.
  2. Tax-efficient mutual funds are taxed at a lower rate relative to other mutual funds.
  3. A taxpayer can open income-producing accounts that are tax-deferred, such as an Individual Retirement Account (IRA) or a 401(k) plan.
  4. A bond investor can opt for municipal bonds, which are exempt from federal taxes.

Meaning of Tax efficiency & Tax efficiency Definition