The tax tail should never wag the investment dog. You know that this saying remains true. And yet if you can get the dog and the tail going in the same direction at the same time, you may have the best of both worlds—a good return that you get to keep.

"It probably shouldn't be your No. 1 investment criterion, but [taxes] ought to be in your top three or four," says Philip J. Holthouse, partner at the Santa Monica tax law and accounting firm Holthouse Carlin & Van Trigt LLP. "If you don't take the tax consequences into account, you are cheating yourself."

There are plenty of opportunities to combine investing and tax management in profitable ways. But the increasing array of choices is making the process complicated for the average investor. And that can lead to costly mistakes.

Holthouse has seen dozens of them. He's had clients—sophisticated, high-income types—fail to realize that they triggered taxable gains when they sold one mutual fund and bought another within the same fund family. He's seen high-income individuals sell a stock one month too soon—within eleven months of the purchase, which precludes them from claiming preferential capital gains tax rates on the profit. Their federal tax hit jumps to about 35 percent from 15 percent on such a transaction. He's seen people put variable annuities and municipal bonds in retirement accounts—an unnecessary and costly doubling up of tax-favored vehicles.

Worse still, he's seen individuals pull ...

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