The following post is sponsored by E*TRADE and written by me, presented via IZEA. All views shared are 100% mine.
The ability to maneuver your investments in a tax-efficient way can greatly enhance your overall returns. The intricate relationship between investment strategies and U.S. tax regulations, however, is often difficult to navigate, leaving many investors unclear on how to operate their portfolios to reduce their tax liabilities.
Before seeking any potential avenues for tax-efficient investing, one should first identify how their investment accounts are legally administered – typically taxable, tax deferred or tax exempt. With the taxable accounts, investors must prepare to pay taxes on their investment returns within the year they are generated.
According to a recent Streetwise survey conducted by E*TRADE amongst experienced investors, it was highlighted that whilst a significant number of them are tax aware, a majority are not fully utilizing all the tools and resources at their disposal to minimize the amount of taxes payable annually on their investments.
In light of the ongoing tax season, with tax day looming, E*TRADE has delved into tax habits of investors and has offered an array of tools to manage taxes presently and in the future. Considering taxes is ever important in long-term investments, as the subtraction of taxes from capital gains can be substantial.
If you’re a do-it-yourself investor desiring to gain control over your finances, E*TRADE offers an assortment of effortless tools and resources in their Education Center to help both investors and traders to easily understand and manage their taxes.
Regardless of whether you are an E*TRADE customer or not, the Education Center is accommodating for all, providing a plethora of educational resources even for non-registered users.
E*TRADE also presents a dedicated Tax Center, which is a hub providing a multitude of tools and resources for customers, compiling critical information ranging from cost basis reporting, managing capital gains and losses to frequently asked tax queries.
Tax-Advantaged Accounts are what the majority of people are investing through, even if they are not aware, which to some extent is already a tax efficient investing, like 401(k)s. However, this could be further pursued through Roth IRA, which allows tax-free growth of your investments after tax dollars are utilized, given the condition that they are withdrawn after 59 and 1/2 years of age.
According to an E*TRADE survey, investors understand the advantages of investing in tax-advantaged accounts such as IRAs, 401(k)s, 403(b)s and Health Savings Accounts (HSAs), with 45% of all investors of the opinion that this is the most effective tactic to limit tax outlay on yearly investments. Interestingly, 50% of all trading occurs in tax-advantaged accounts, going up to 60% for younger investors.
Other strategies found to be effective for minimizing taxes paid on investments include selling off underperforming positions to counterbalance capital gains, investing for at least a year for tax deductions on gains, investing in tax-free municipal bonds, investing in tax-deferred annuities and investing in low turnover funds.
Maximizing the utilization of these accounts can yield savings surpassing some countries’ GDPs, making you the talk of the town! On the path to Tax Day, your online broker can guide you through investing efficiently from a tax perspective, providing tools that are typically accessible to ALL investors regardless if they are customers or not. One must remember, though, that tax avoidance should not be the sole motivation behind investment decisions.
