Could you be missing out on tax-savings opportunities?
Many people do not prepare for the impact of taxes on their investment and retirement accounts until they have been negatively affected by them. As we move into tax season, now is a great time to begin thinking about strategic and tactical tax planning for 2021 and beyond. Over the next several weeks we will be posting some valuable tips on how to cut or minimize taxes.
Tax Tip #5 – Tax Efficient Investing
There a myriad of ways to ensure you are investing in the most tax efficient way possible. An example may be investing in municipal bonds, which are debt securities issued by state and local governments in the US. They are used to raise money for local projects such as infrastructure and school improvements. Interest earned on municipal bonds is exempt from federal taxes, and, in many cases, exempt from local and state taxes as well. Because the earnings on municipal bonds are tax exempt, it is more advantageous to hold them in a taxable account and are particularly beneficial to individuals in high tax brackets.
Talk to your advisor about ways you can invest for the best tax consequences for your individual situation. Every situation is different and often have many moving pieces that a good advisor should be able to help clarify.
Check out our other posts to understand how to CUT YOUR TAX BILL IN 2021!
- #1 Taking advantage of employer sponsored savings plans – including HSA’s, FSA’s, 401k’s, and others
- #2 Paying attention to available tax credits – often people are unaware of tax credits available to them and how to best use them
- #3 Using Tax Losses – Known as tax-loss harvesting, this can be an effective way to minimize taxes from one year to the next
- #4 Open a Donor Advised Fund (DAF) – A DAF, is a great way to lower your tax base while offering flexible opportunities to donate to charities and nonprofits of your choice
- #5 Tax Efficient Investing – There are definitely was to invest that are advantageous from a tax-perspective depending upon your individual situation. This is affected by total assets (including property), individual tax bracket, international holdings, long and short term objectives just to name a few.
DISCLOSURE: The material above is for informational purposes only and should not be interpreted as legal, tax or financial advice. Always consult your CPA/tax advisor/attorney to discuss your specific situation.
