When it comes to your investments, you want to make sure you’re making the right choices to keep as much of your money as possible. There are four strategies to consider to minimize your taxes on your investments.
The first strategy is to invest for the long term. Any gains that you’ve made, you’ll eventually have to pay taxes when you sell your stocks. To avoid paying taxes, keep your investments for one year until they reach the long-term capital gain tax rate, which is around 15 to 20 perfect. If you keep your position for less than a year and you have gains, you’ll end up paying taxes at your current income rate. This could be as high as 37%.
The second strategy is to harvest your losses. If you have any realized gains on your investment, you may be able to offset these gains with any losses you may have had. If your losses exceed the gains you have made, you can use your losses to offset up to $3,000 of ordinary income, and the rest of your losses can be carried over to be used in future years. Be mindful of the wash sale rule: if you sell an investment for a loss and buy that same investment within 30 days, you will not be able to claim that loss.
A third strategy is to contribute to charity. Any long-term position that you have can be gifted to a charity. You may be able to get a tax deduction based on the stock’s fair market value at the time it was donated to charity. The charity will sell the stock without paying taxes as well.
The final strategy is to consider taxable versus tax-deferred investment accounts. Corporate bonds or dividend-paying stocks may be better to invest in an IRA because you can defer paying taxes on these types of options. On the other hand, any growth stocks or municipal bonds can be taxed as long-term capital gains in a non-retirement brokerage account.
