, FL (PressExposure) June 16, 2009 -- Nobody welcomes taxes but it is inevitable. You can work out for minimizing the tax. Applying a few simple tax principles saves you a lot of money.
Reinvested dividends increase investment in a fund and sizably reduce your taxable gain (or increase your capital loss). Forgetting to ensure the reduction in taxable income could cost you quite a bit in the long run. Hence, record reinvested dividends accurately and review the tax rules every time the tax season is around.
When stock markets are bumpy, bonds seem to be the safest option to invest in. Report the interest income on your tax return. You may not have to pay tax on all the interest you receive. Municipal bonds and short term government debts can also be a convenient harbor for your money and offers considerable tax advantages.
For those investors that have small time businesses on their own, you have an opportunity to write off some operating expenses. For example, business trips that require you to travel, accommodation, meals etc. can be written off within specified limits. If you travel frequently and forget to include these personal expenses, it cost you sizeable dollars in lost tax savings.
Making stock purchases through a tax-deferred account can save a lot of money for you and give you the benefit of flexibility. You are not taxed until the point where you withdraw when you are taxed at the rate of your income tax bracket. Individual Retirement Account (IRA) and Simplified Employment Pension (SEP) plans are the most common plans.
Match the sale of your profitable investments and the ones in which you have incurred loss in the same year. Capital losses can be used against capital gains, and short-term losses can be deducted from short-term gains. If you incur excess loss, you can apportion it over the future years. Close out of losing investments and match your capital gains with offsetting losses to reduce your tax burden by a significant extent.
You incur expenses on broker while purchasing stock â fee, transferring fee in case of changing brokers. Add on this expense to the cost of your investment. While calculating return, deduct this amount because these are direct expenses you have incurred out of your pocket towards acquiring investments. The impact of brokerage fees can be substantial if you put together all of the fees on all your investments together. Hence, account for them and claim every expense when filing taxes.
Short-term capital gains (less than one year) are subject to higher tax rates than long-term ones. It can prove very beneficial to hold onto your stocks for at least a year. The savings can be more worth it.
Shrewd tax management where you take advantage of every tax avoidance opportunity that applies to your situation will make you a winner. You have to ensure that you do not overlook any expenses or other income-reduction techniques that can reduce your taxable earnings. Start early and plan your investments well. Donât wait until the last minute to file your taxes. Be systematic and proactive.