"Be a Tax-Savvy Investor" outlines four steps:

 

Step 1: Invest in Tax-Advantaged Accounts. One of the most important strategies that investors can leverage to reduce their taxes is to invest in tax-advantaged accounts, such as employer-sponsored retirement plans, IRAs (Traditional IRA and Roth IRA), and for the self-employed, SEP-IRAs.

   

Step 2: Put Your Funds in the Right Accounts. To minimize taxes on the dividends and interest earned on an investment, individuals may want to consider placing the more tax-inefficient investments into tax-deferred accounts, such as an IRA, and more the more tax-efficient investments into a taxable account.

   

Step 3: Cut Taxes on Your Taxable Accounts. Investors may be able to reduce their tax bill and increase their after-tax return by investing in tax-exempt funds, such as municipal bond funds, in their taxable accounts, or consider investing in tax-efficient funds, such as index and tax-managed funds.

   

Step 4: Buy and Sell With Care. When buying shares of a mutual fund, investors should inquire about the realized gains in its portfolio and the record date of the next capital gains distribution in order to avoid "buying the dividend." Also, redeeming shares of a mutual fund often means owing capital gains tax on any profit. Individuals can lower their net capital gains amount by selling the shares from a fund that lost value at the same time as selling shares from a fund that gained in value.

   

Vanguard's Be a Tax-Savvy Investor booklet is available at Vanguard's Web site.