Edit ModuleShow Tags

Top four tips for tax-savvy investors


Published:

A century ago, author Mark Twain wrote that the difference between a taxidermist and a tax collector is that the taxidermist only takes your skin. Today, the IRS isn't any more popular. Why not see if any of the following strategies could allow you to keep more of what your investments earn?

1. Look into tax-managed mutual funds. Portfolio managers of tax-managed funds can use a number of strategies to help reduce the tax bite shareholders suffer. For example, they may strive to keep portfolio turnover low to help minimize taxable gains, or they may actively use losses to offset taxable gains.

2. Consider municipal bonds and bond funds. Because the interest on a municipal bond is usually exempt from federal taxes, and sometimes state and local taxes, it may actually produce a better yield than a taxable bond with a comparable interest rate. The higher your income tax bracket, the more you may benefit from owning "munis."

3. Contribute to tax-advantaged retirement vehicles. You can now contribute up to $5,000 annually to an IRA plus an additional $1,000 per year if you’re over age 50 (for the 2010 tax year). Traditional IRAs offer tax deferral — you pay no taxes on earnings until withdrawal — and may provide tax deductions. Roth IRAs offer tax deferral and qualified withdrawals are tax free, but no tax deductions.

4. Use gains — and losses — to your advantage. If you have an investment and hold it for at least one year before selling, you'll pay a maximum federal tax of 15 percent on capital gains. The same rate applies for dividend income. Keep it for less than one year and you'll pay regular income taxes — up to 35 percent. Also keep in mind that if you intend to sell investments that have lost money, you can do so by Dec. 31 and deduct up to $3,000 in investment losses from that year's tax return. Additional losses can be carried over and used to offset future capital gains.

There are other tax strategies you can use, but be sure to consult your tax professional and investment professional before acting.

Edit Module
Jeff Nelligan

Jeff Nelligan is a Financial Advisor and Senior Vice President of Wealth Management for Morgan Stanley Wealth Management in Denver. If you’d like to learn more, please contact Jeff at (303) 572-4034 or toll free: (800) 477-3041 x4034. Email Jeff at jeff.nelligan@morganstanley.com or visit his website at http://www.morganstanleyfa.com /jeff_nelligan.

Get more of our current issue | Subscribe to the magazine | Get our Free e-newsletter

Edit ModuleShow Tags

Archive »Related Articles

Gov. John Hickenlooper proclaims "Tech Week" in Colorado

Gov. John Hickenlooper has proclaimed Aug. 1-5, 2016, as Tech Week to celebrate the innovative leaders and companies transforming Colorado into an internationally renowned tech hub.

Colorado Companies to Watch 2016: On the cutting edge

So why are the lawn sprinklers running while it’s raining? That was the “Aha!” moment that led to the Iro, Rachio’s wi-fi enabled controller and mobile app that allows users to set it and forget it, making water conservation painless.

Colorado employers: What you need to know about pregnancy accommodation

New anti-discrimination protections for pregnant applicants and employees were signed into law by Gov. John Hickenlooper on June 1. Here's what you need to know.
Edit ModuleShow Tags

Thanks for contributing to our community-- please keep your comments in good taste and appropriate for our business professional readers.

Add your comment: