While you are busy in earning a fortune on your investments!
It’s a common misconception that investors do not pay state taxes on their profits. Remember, all investors have to pay both federal and state taxes. Paying right amount of tax is very important for any investor. You should plan your financial activities smartly to ensure that you are paying just the right amount of taxes.
For this you need to know which tax rules are applied on your investments. There is one quick solution – just browse the Internet and find out! Browsing Internet is a good source of knowledge these days. You will find many articles on taxation and investment related topics written by experts in the field. They can be used as guidelines. But if you are not so confident about them it is better to consult a reputed and well qualified tax professional like a CPA or a tax lawyer. If you are in doubt about tax calculations on your investment, he can do the job for you. With his consultations you can easily save much more than what you are spending on his fees.
Here are some useful guidelines -
When the market conditions are unpredictable, investing in bonds is the safest option. Municipal bonds are of great tax benefit as they are tax exempt. You can save in tax if you study different bonds and invest some of your funds in bonds along with other options.
If you are using your home computer for your daily on-line trading transactions and these records are saved on your computer, the cost of purchasing this computer and its accessories can be claimed as a deduction on your tax return. Just calculate how much you can claim!
Also don’t forget to deduct the reinvested dividends in mutual funds from your capital gains. This is another way to save your taxes.
When you sell your profitable investment, to maintain the balance you should sell a loss making investment along. This way you can balance the profit earned against the losses and this balancing may prove very useful. To work on such transactions you can take the help of a tax consultant.
You have to pay capital gains tax while trading in stocks. But using individual retirement account or simplified employment pension plan may prove advantageous. So try and use these tax deferred accounts. These will also help you on your retirement as you will be in comparatively lower tax bracket.
Finally don’t forget to deduct commissions on purchase and transfer of stocks and the broker’s fees. These are added to your costs and hence subtracted from the sale price of the stocks.
To save on your taxes it is important to understand the nature of your investments. You should also maintain all your investment records. These records should be easily accessible so that you can consult your tax professional anytime. You can even consider an option of on-line tools like Gainskeeper.
The mantra is simple – invest smartly and try to save maximum by paying the right amount of tax.
Written by Chintamani
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