4 Ways to Minimize Taxes on Your Investments
Now that tax season is upon us, it's time to better understand the ways in which your investments can cause your tax bill to increase. It's a good idea to think about how to engineer a portfolio in such a way that it gives you the returns you want with a limited tax burden. Here, we'll take a look at four ways to minimize the taxes associated with your investments.
The tax system in the U.S. very much favors those who plan to hold their investments for at least a year after purchase. This discourages day trading and speculative buying, but there is a fair share of investors who still engage in these practices.
If you buy a stock and then sell it after more than a year has passed, you'll pay capital gains tax on any investment gains. Tax rates on capital gains, as they stand in current tax law, range from 0% to 20% depending on your income. If, on the other hand, you sell the stock after only a year or less, you'll pay ordinary income tax on your investment gains. Short-term stock gains also have the potential effect of pushing you into a higher tax bracket.
Source Fool.com
