Investing can be a great way to build wealth. At the same time, it is important to take advantage of ways to save money on all investments so that each investor can keep more of his/her gains. Successful investors will choose their investments wisely, watch them carefully, and follow useful investor tax tips. Importantly, keeping good records and obeying tax rules is critical to staying out of trouble with the IRS.
What Are Some Ways To Invest?
There are numerous ways to invest today:
- Two of the most common methods are purchasing stocks and bonds. Stocks include individual stocks, mutual funds, index funds, and Exchange Traded Funds (ETF).
- Real estate investing is currently booming and that spans residential real estate, house flipping, multifamily properties, Real Estate Investment Trusts (REITs), and more.
- Through a traditional IRA or a Roth IRA, individuals can invest in their retirement savings and accrue growth over time until they are of age to withdraw.
- Certificates of Deposit (CDs) offer a safe way to invest.
- Cryptocurrencies are a somewhat “hot” speculative investing possibility.
Good investor tax tips can help taxpayers with any of these investment types.
What Taxes Do Investors Have to Pay?
There are common types of taxes on investments that need to be accounted for when you’re putting together your tax documents and filing.
First is the tax on capital gains. This tax is applied to the profits on any sale of an asset whether that asset is shares of stock, a business, a building, or property. Any assets that are held for less than a year are taxed at the higher ordinary income tax rate. Taxes can be reduced by using any asset losses as an offset against other gains.
There is also is a tax on dividends. Dividends are taxable in the year that they are received, even if the dividend is not received in cash. Holding investments longer can qualify the dividends for a lower tax rate.
There are taxes associated with a 401(k) account. However, while invested funds are in a 401(k), there is no tax due. Taxes are due when a withdrawal is made.
Taxes on mutual funds consist of taxes on dividends and capital gains while you hold mutual funds shares, and taxes also apply when the fund shares are sold.
Lastly, the sale of a home qualifies for the exclusion of capital gains. Sales of a property will focus on the appreciated value of a property when it is sold.
Investor Tax Tips
Use these beneficial investor tax tips to protect the value of your investment and improve your gains.
When filing income taxes, make sure to claim all eligible deductions. Any capital losses can be used to offset gains. Further, if capital losses exceed gains, the losses can carry forward to the next year. Also, use any losses to offset ordinary income. Where possible, try to get more shares of stock instead of being awarded dividends. Always try to hold assets for more than one year. Assets held and sold in less than one year will pay taxes at a higher rate. Use tax breaks for retirement accounts. And maximize contributions to retirement accounts.
In every case, it is critical to calculate taxable gains correctly. One of the best investor tax tips is to secure the tax assistance of an experienced CPA.
Get Expert Tax, Accounting, and Financial Assistance
Contact Doerhoff & Associates, CPA, based in Jefferson City, MO for professional accounting, financial assistance, and tax preparation that you can count on. Doerhoff & Associates has one goal in mind, to provide comprehensive business accounting services designed specifically for your success.