One of your biggest expenses may be paying federal and state income taxes. But why give your money to Uncle Sam, when you can invest in your future instead? The following three investment strategies could help you to lower your overall tax burden.
Look for capital losses throughout the year. In December, your tax professional might urge you to look for losses to offset your capital gains. This strategy helps to reduce the taxes you owe on those gains, which for investors may be a significant part of their overall income. But you don’t have to wait until the last minute to make this big decision. Look for alternative investments to offset your gains throughout the year. You’re also less likely to raise IRS eyebrows when you don’t perform all of your complicated tax maneuvers at the end of the year.
Consider the long term. Let’s say you’ve been considering moving to a safer investment strategy as you get closer to retirement. But you’re afraid to sell certain high-performing assets because of the immediate impact of capital gains taxes. Keep in mind that some funds see so much turnover that the annual capital gains taxes outweigh the benefits of holding onto them. Meet with your financial planner or tax professional, and run the numbers both ways. It may be better to pay more in taxes during one year, and move yourself into a position to pay lower income taxes in future years.
Keep your eyes open. People who retire early often say that they met their retirement savings goals by constantly looking for ways to save money. There is no need to become obsessive about money, but keep yourself informed. Follow your favorite investment blogs, schedule regular meetings with your tax professional, and share your concerns with your financial planner. Keep your eyes open for new tax savings opportunities, so that you recognize a great one when it crosses your path.
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