Taxes are an inevitable depleting phenomenon in the financial equation of stock market traders and investors.
There is no possible legal method of evading taxes, we have to pay them. So, it is in our best interest to manage them in order to minimize the pay out amount as much as possible.
This thought is common among all investors as the end of the year approaches – How can I pay a minimum tax amount and get done with it?
Different investors find themselves in varied situations and tax minimization solutions are not common either.
But, there are few principles which can be applied to almost all situations and help make some extra savings.
Let us delve into some of these smart investing practices that enable you for some much required tax benefits.
Note: The information in this article should only be used as general information, not as solid taxe-advise. Consult your attorney or accountant before making any tax decision.
Manage Your Capital Gains
Capital gains are the reason most investors get into stock market trading in the first place. But, something called the capital gains tax on sale of your securities eats into your profit.
It is important to manage your capital gains with the taxes you need to pay on them. Very often investors end up paying huge amounts of tax because they hadn’t kept check on the reinvested dividends that they had been receiving over the years.
One must regularly review the reinvested dividends and be informed about tax rules applicable to their trend of trading.
Writing-off assets which you utilize for trading purposes like a computer, mobile phone, office etc. is a good way to control your tax pay outs.
But it is important to remember that only a part value of the assets which contribute to your trading purpose can be considered for depreciation.
Consult a tax expert on many operating expenses you incur in your daily business routine which can be adjusted in your tax returns.
Tax Deferred Plans
For long term investments you can invest through tax deferred plans. Many such plans are available in the market like pension plans etc.
What these tax deferred plans enable you to do is pay out all your tax only at the time of withdrawal and that is subjective to your income bracket. Your income, after retirement will most likely be lesser and you shall pay less tax.
Adjust Your Brokerage
With Every trade that you make a brokerage fee needs to be paid to your stock broker/consultant. Most traders don’t realize this but this brokerage can be written off as an expense incurred to make the trade possible.