There are many ways to save money on taxes as an investor. By taking advantage of different small tax benefits, you can save a lot of money in the long run. Compound interest plays a role in this as well. Here are three more tips for saving money on taxes as an investor.
Tax-Deferred Accounts
Take advantage of different investment accounts that let you grow your investments tax-free. Retirement accounts such as IRAs are great for this, as are Health Saving Accounts, 529 accounts for educational savings, and so on. Ask your advisor about which tax-free savings accounts are available in your situation.
Reinvestment Dividends
Reinvestment plans that automatically reinvest your dividends have many benefits, but fewer taxes aren’t necessarily one of them. These dividends are dividends, after all, and they are still taxable. However, stock dividends that do not offer you the ability to receive cash right away are different. In that situation, you pay taxes when you make the final sale of the stocks and receive your gains.
Charitable Contributions
If you like giving money to charity and receiving tax benefits at the same time, consider donating your gains to charitable causes. If you donate your long-term stocks to charity instead of selling them for gains, they will not qualify as income on your tax reports and you will receive the full fair market value as a tax deduction. For short-term stocks (those you hold for less than a year), your tax deduction will be less than the full fair market value.
Remember to take out Required Minimum Distributions from accounts that necessitate it to avoid penalties. You can also donate your RMD to charity if you so wish. Also, remember that you may have to pay quarterly estimated taxes on your investment gains. Contact us today for professional help.
