20 Jul 2 Ways to Reduce Your Investment Taxes

What a lot of people don’t know is that you can really save a lot of money on your investment taxes. In fact, it is certainly possible to pay zero tax dollars for your investments. Before that, it essential that you decide on your goal. Do you wish to reduce capital gains taxes or are you looking to capitalize on your after-tax returns?

Ideally, you should aim at maximizing your after-tax returns, and it could very well be the case that you land up paying more taxes than other investment channels. Here are some ways in which knowledgeable investors reduce their capital gains taxes while enhancing their after-tax investment returns.

Retirement accounts

The top tip in tax-efficient investing is to invest in 401(k)s and Roth IRAs which are tax-protected accounts. Even people in the high-income bracket, ones who may already have retirement accounts from their employers, should exploit this channel. They just have to do it differently. Health savings accounts are your best bet. It could also be the case that you have multiple separate employers, in which case you can hold multiple 401(k) accounts.

The idea of a retirement account is that being a tax-deferred account you get current tax relief and often an arbitrage for when you migrate to a lower tax bracket in the future. A tax-free (or Roth) account will guarantee all future gains as being tax-free. Dividends taxes and capital gains taxes can also become tax-deferred or even tax-free, based on the type of account.

Tax-efficient investments

Another way to slash the taxman’s takings in a taxable account is to invest efficiently tax-wise. This translates to opting for low-cost, low-turnover stock index mutual funds, for small tax distributions. Also, if you do get taxed pick your more tax-efficient investments to put into your taxable account. The key is to hold your investments for longer rather than constantly updating things also brings down the bill.

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