How to Minimize Investment Taxes

Why Are Taxpayers Leaving Behind Billions of Dollars at Tax Time?; taxes

How to Minimize Investment Taxes

As an investor, your first priorities should be 1) to develop an asset allocation strategy that aligns with your investment objectives and risk profile, and 2) to select quality securities that support that strategy. Only after that’s done should you turn your attention to taxes and identify opportunities to improve the tax-efficiency of your portfolio.

Here are several planning strategies to consider:

• Make the most of tax-advantaged accounts. Evaluate the tax-efficiency of each investment, based on factors such as dividend yields, fund turnover, and expected growth. To the extent possible, tax-efficient investments should be held in taxable accounts. Tax-inefficient investments should be held in tax-advantaged accounts, such as traditional or Roth IRAs, qualified retirement accounts, or education savings accounts. Tax-advantaged accounts may also offer opportunities to rebalance your portfolio tax-efficiently by containing asset turnover, to the extent possible, within those accounts.

• Consider tax-efficient options. Examine investment alternatives that offer similar benefits in a more tax-efficient structure. For example, exchange traded funds (ETFs) typically generate fewer taxable gains than comparable mutual funds, and index funds tend to be more tax-efficient than actively managed funds.

• Analyze tax-exempt investments. Consider tax-exempt investments, such as municipal bonds. But be sure to calculate the tax-equivalent yield to determine whether the tax savings compensate for reduced returns.

• Harvest losses. Throughout the year, consider selling poor-performing investments to generate losses that can be used to offset capital gains (plus up to $3,000 of ordinary income). You can even buy the investments back, so long as you wait at least 31 days to avoid the wash sale rule.

• Watch out for short-term gains. Gains on investments held less than a year are generally taxed as ordinary income and may also be subject to the 3.8% net investment income (NII) tax. There are several potential strategies for minimizing these taxes, including holding these investments for at least one year, harvesting losses to offset short-term gains, and limiting short-term gains (if possible) to tax-advantaged accounts.

• Pay attention to basis. If you buy shares of stock or mutual funds at different times, you can minimize your gains when you sell a portion of your shares by selling the shares with the highest cost basis. To do that, you need to use the “specific identification method” and inform your broker which shares you wish to sell. If you don’t, the IRS will apply the first-in, first-out (FIFO) method, which often results in the lowest-basis shares being sold first, generating higher capital gains.

• Avoid year-end mutual fund purchases. This is a common tax trap. Generally, mutual funds distribute capital gains and other income near the end of the year. If you invest in these funds shortly before the record date, you’ll be taxed on these distributions as if you had held the funds all year.

Tax season is an ideal time to consider these issues. An examination of your investment-related taxes for 2016 can reveal tax-saving opportunities for 2017.

 

We hope you found this article about “How to Minimize Investment Taxes” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.  Unfortunately, we no longer give advice to other tax professionals gratis.

To receive our free newsletter, contact us here.

Subscribe to our YouTube Channel for more updates.

Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

Alan L. Olsen, CPA, Wikipedia Bio

 

 

GROCO.com is a proud sponsor of The American Dreams Show.

 

American-Dreams-Show-Accounting-firm-in-ca-cpa-tax-advisors-groco-alan-olsen

The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.

Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.

The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.

They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..

American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:

Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…

Untitled_Artwork copy 4

MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness.  It’s mission statement:

In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.

Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.

Posted in

Do You Owe Money To The IRS?

The vast majority of Americans get a tax refund from the IRS each spring, but what do you do if you are one of those who have received a tax bill? What do you do if you owe money to the IRS and can’t pay? The IRS encourages you to pay the full amount of…

How Some Big Companies Are Maximizing Their Tax Benefit

How Some Big Companies Are Maximizing Their Tax Benefit

How Some Big Companies Are Maximizing Their Tax Benefit There’s no question that the IRS is always looking for ways to get every penny they can from the nation’s taxpayers, whether they be individuals or businesses. On the other hand, many are also doing whatever they can to pay as little as possible, some, even…

Federal Government Still Facing Huge Deficit

Federal Government Still Facing Huge Deficit

Federal Government Still Facing Huge Deficit Does it seem like no matter how much money the federal government collects in tax revenue, they will still never have enough? For a lot of people the, answer is a resounding “yes.” The country’s Monthly Treasury Statement lends even more credence to that belief.  What does the Treasury…

The IRS is Not a Bully – You can poke a bully in the nose.

The IRS is Not a Bully You can poke a bully in the nose. This is the third installment of “The IRS is Not a Bully” series, identifying taxpayer concerns and the difficult position in which Congress puts the IRS. Namely, applying ever increasing pressure to operate in ways its founders never intended, until it’s…