Taxes and Investors

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Filing of Taxes have already started and there are still a lot to learn about. As per Investopedia, there are various types of taxes that a business should pay depending on the company’s physical location, ownership structure, and the nature of a business. They may be required to pay the following:

  1. Federal Income Tax
  2. State or Local Income Tax
  3. Payroll Tax
  4. Unemployment Tax
  5. Sales Tax
  6. Foreign Tax
  7. Value Added Tax

Though, Many are hoping not to pay taxes, Paying Taxes is a must. You must rather pay the taxes on or before its due date rather than regret it in the end.

For individual Investors, Investopedia has enumerated these helpful Tax Tips that can help you save money

Source: Tax Tips For The Individual Investor

  1. Dividends – Reinvested dividends increase your investment in a fund and thus reduce your taxable gain (or increase your capital loss).
  2. Bonds – When the stock markets perform badly, investors make the flight to quality and look elsewhere for places to put their money. Many find a safe haven in bonds. When you are calculating your taxes, remember to report the interest income on your tax return: you may not have to pay tax on all the interest you received.
  3.  Write-Offs – For investors who invest in small business ventures or are self-employed, there are many operating expenses that can be written off. For homeowners who have moved and sold their home during the year, an important consideration when reporting the capital gain on the sale is the actual cost basis of the purchase of the home. If your home has undergone renovations or similar improvements having a useful life of more than one year, you will likely be able to include the cost of such improvements into the adjusted cost base of your home, thus reducing your capital gain incurred on the sale and the resultant taxes.
  4. Tax-Deferred Programs Are Like Free Money – Every time you trade a stock, you are vulnerable to capital gains tax. Making your purchases through a tax-deferred account can save you a pile of money. Tax-deferred accounts come in many shapes and sizes. The most well known are individual retirement account (IRA) and simplified employment pension (SEP) plans. The basic idea is that you are not taxed on the funds until you withdraw, at which point you are taxed at the rate of your income tax bracket.
  5. Match Your Profits and Losses in the Same Year – it is a good idea to match the sale of a profitable investment with the sale of a losing one within the same year. Capital losses can be used against capital gains, and short-term losses can be deducted from short-term gains.
  6. Add Broker Fees to the Cost of Your Stocks – These expenses should be added to the amount you paid for a stock when determining your cost basis. When you sell the shares, subtract the commission from the sale price of the stocks. Think of these costs as a write-off because they are direct expenses incurred to help you make your money grow.
  7. Try To Hold On to Your Stocks for At Least 12 Months – take a moment to consider the tax advantages of using a longer-term buy-and-hold strategy if you are not doing so already – the savings can be worth more than you think.
  8. The Bottom Line – Part of a successful financial plan is astute tax management: ensuring you are actively taking advantage of tax avoidance opportunities that apply to your situation and also making sure you do not overlook any expenses or other income-reduction techniques that can reduce your taxable earnings.


GetSmarterAboutMoney.Ca explains that if you’re an investor, you’ll need to pay the taxes on interest-bearing investments, dividend-paying investment, capital gains and foreign investments. The amount of taxes you need to pay depends on the type of investment you made, the tax laws where you lived, if investments are held in tax-sheltered plan and based on your income. For Further information, click this link to read the full article.

TurboTax has also shared some Tax tips for Investors.

Source: Tax Tips for Investors

  1. Put your Retirement Account to Work
  2. Review your Portfolio Mix
  3. Play the Match Game
  4. Maximize Itemized Deductions

To know what to report on your investments and have an idea how they were taxed, You have to to categorized your investment –  if it generates interest income or you have sold the investment. Determining if its Ordinary income or Capital gain will help us understand how our investment is taxed. You must also understand what basis means. In investment, Basis means the amount of investment in an asset. You should also know how to compute your capital gain or loss. And learn to use your capital losses to reduce your tax liability. If things do not go according to plan, you can always ask for the assistance of a Tax professional or an Accountant. For further information, read the full article here.