Take a little time out from the holidays to make some strategic saving and investing decisions before December 31. It could impact the amount of taxes you’ll owe next April.

The first step in your year-end investment planning process should be a review of your overall portfolio. That review can tell you whether you need to rebalance your portfolio. Your overall review should also help you decide whether that rebalancing should be done before or after December 31 for tax reasons.

Make sure your asset allocation is still appropriate for your time horizon and goals. Consider being a bit more aggressive if you’re not meeting your financial targets, or more conservative if you’re getting closer to retirement. For greater diversification, add an asset class that tends to react to market conditions differently than your existing investments. Diversification and asset allocation don’t guarantee a profit or insure against a loss, but they’re worth reviewing at least annually.

When making changes in your portfolio, don’t forget to consider how long you’ve owned each investment. Assets held for a year or less generate short-term capital gains of up to 35% while assets held for more than a year generate long-term capital gains of 15%. The tax consequences of any capital gains or losses you’ve experienced this year can be critical. Though tax considerations shouldn’t dictate how you invest, there are steps you can take before the end of the year to minimize any tax impact of your investing decisions.

If you have realized capital gains from selling securities at a profit and you have no tax losses carried forward from previous years, you can sell losing positions to avoid being taxed on some or all of those gains. Selling losing positions for the tax benefit they will provide next April is known as harvesting your losses. If you’re selling to harvest losses in a stock or mutual fund and intend to repurchase the same security, make sure you wait at least 31 days before buying it again. Otherwise, the trade is considered a “wash sale,” and the tax loss will be disallowed. The wash sale rule also applies if you buy an option on the stock, sell it short, or buy it through your spouse within 30 days before or after the sale.

If you’re buying a mutual fund in a taxable account, find out when it will distribute any dividends or capital gains. Consider delaying your purchase until after that date, which often is near year-end. If you buy just before the distribution, you’ll owe taxes this year on that money, even if your own shares haven’t appreciated. And if you plan to sell a fund anyway, you may minimize taxes by selling before the distribution date.

Think about which investments make sense to hold in a tax-advantaged account and which might be better for taxable accounts. As a general rule, it’s not a good idea to hold tax-free investments in a tax-deferred account because no additional tax advantages are realized to compensate you for the tax-free investments’ lower returns. When deciding where to hold specific investments, remember that distributions from a tax-deferred retirement plan don’t qualify for the lower tax rate on capital gains and dividends.

Unloading some investments prior to year-end may help you to maximize your tax advantage. Remember that calculating the cost basis to your advantage now means that you have to do it the same way for any future sales of the same investment. Decide if it’s more important to sell before year-end to generate capital losses to offset capital gains, or to just keep capital gains to a minimum for tax purposes.

Contact your friendly home town banker to help you with your year-end investment strategies.