Tax efficient investing is likely something that has crossed your mind. After all, who doesn’t want to save money in taxes.
There are two strategies that I want to discuss today that you can use to make your investments more tax efficient and put more dollars back into your pocket.
CAPITAL GAINS STRATEGY
If you invest in mutual funds then it is likely that you are incurring unnecessary taxation.
Many mutual funds issue capital gains during this time of year (November and December), which may cause you to face a significant tax burden. Depending on your situation, you could end up paying thousands of dollars in unnecessary taxes.
So, how does this strategy work?
To avoid this taxation, you simply just need to sell the mutual fund(s) before it issues the capital gain. Every mutual fund has a different date for when the capital gains are issued, so you must do a little bit of research.
If you want to remain invested, then you would simply just buy a different investment that is not scheduled to pay a capital gain. See caution below regarding Wash Sale Rule.
TAX LOSS HARVESTING STRATEGY
Another strategy that you can use to make your portfolio more tax efficient is to sell an investment that is currently reflecting a loss. Then you could immediately invest the proceeds into a similar investment.
This strategy does not have to be executed by a particular time on the calendar like the Capital Gain Strategy. Instead you can execute it whenever you have an investment that is operating at a loss.
The bottom line with both strategies is that you can remain fully invested if you desire, yet avoid unnecessary taxes at the same time. In layman’s terms, you save money with tax efficient investing!!!!
Unsure if these strategies apply to you, then feel free to contact us to learn more. We will review your portfolio at no charge.
You can also visit our website for our investment strategy, the investments we use, and how we build portfolios to learn more about our passive investment strategy which is designed to minimize an investor’s tax burden.
A WORD OF WARNING: Regardless of which strategy you use, you must be aware of the Wash Sale Rule. This means that if your mutual fund is sold at a loss then you may be denied the loss for tax purposes if you buy back into the same or equivalent investment 30 days before or after the loss.
Brad E.S. Tinnon
CERTIFIED FINANCIAL PLANNER™
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