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Maximize Your Investments in 5 Steps

Maximize Your  Investments in 5 Steps

Investing can provide a great return on investment for those looking to grow their retirement savings or can use these investments to reach a specific financial goal. However, these investments also can bring certain tax implications that you need to consider as part of your investment strategy. This is especially true if you are choosing to sell off some of your stock and bond investments during a particular tax year. However, to determine the tax implications for your specific situation, it is important to discuss your investment strategy with your tax professional or accountant, such as Plymouth Income Tax Consultants in Plymouth, MA.

It is important to remember that while the taxes must be paid, by managing your investments with a specific strategy and doing proper tax planning, you can avoid having a large amount of tax liability in one specific year. Here are 5 steps to consider as part of your investment strategy.


Reinvested Dividends


Reinvested dividends are essentially increasing your investment in a particular fund and thus they can reduce your taxable gain or increase your capital loss. Therefore, when you sell your dividends, you need to be sure to deduct the cost of the reinvested dividends.

An important point to keep in mind is that by not keeping accurate records of your dividends, especially the reinvested ones, then you could be missing out on additional tax savings as reflected by the growth of your basis in any particular fund due to the reinvested dividends.

Consider consulting with your tax professional or accountant to determine that you are receiving the accurate tax savings based on your current investments.


Write Off Opportunities


Investors who are active in small business ventures or may be self-employed, there are a variety of operating expenses that could potentially be written off. These could be related to your home office and travel expenses, but only those that are specifically business related. By including these deductions in your tax return, you can reap the benefits of additional tax savings to offset any interest income received by other investments.


Using Tax Deferred Programs


Trading stocks brings a certain vulnerability to the capital gains tax. However, if you make your purchases using a tax-deferred account, you can see some tax and cost savings. The most well-known of these types of accounts is the IRA (individual retirement account) and a SEP (simplified employment pension). Essentially, you are not taxed on the funds until you withdraw them and then you are taxed based on the tax rate of your tax bracket at the time of distribution.

This gives you the flexibility to sell stock at stronger prices and make a profit without being concerned about the short-term capital gains taxes that could be incurred on those profits.


Timing Your Bond Purchases


While bonds are considered a safe investment, they still produce taxable interest income. This must be reported on your tax return. However, you may not have to pay tax on all the interest income, but this is based on the timing of when you purchased the bond. For example, if you purchased a bond in between the interest payments, which typically occur twice a year, then you will not have to pay taxes on any accrued interest paid out prior to your initial purchase. While you may have to report all the interest paid, you can subtract the accrued amount using a separate line.


Match Profits with Losses


Whenever possible, it is important to match up losses and profits within the same tax year. As a result, you will find that they can essentially offset each other and reduce your tax liability. A positive about losses is that they can also be carried forward and used in future years. However, there are limits to how much of your loss you can carry over and for how long you can carry a loss. So discuss the implications of any profitable sales and potential losses with your tax professional to see how these sales might impact your tax liability. Recognize that if you are willing to take a loss on one stock, you might be able to offset the impact of the taxes on a more profitable sale.


Investments can provide a great way to grow your savings and reach key financial goals. However, without properly managing them, you may find that your return is not as great due to your tax liability. Therefore, working with a tax professional or investment planner can help you maximize your return while reducing your overall tax liability.


Click on the link below to contact a tax professional or accountant at Plymouth Income Tax Consultants in Plymouth, MA, to determine the best tax strategy for your particular investments.

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