We’ve previously written about Bookkeeper Tips on 2022 IRA Contributions to help you make the most of your investment dollars. However, there is much more you can do get the most out of your money. Below, we will show you how to minimize tax burden on investments for 2022.
1.Do Not Invest 401 (k) options That Add to Taxes
Did you know that some 401 (k) investments can add to your taxable income each year even if you don’t spend it on anything else? These include any investments that pay dividends to you or any interest that becomes income. These can be taxed even if you immediately reinvest them. The good thing about your 401 (k) is that it is meant to increase in value outside of taxes. You can even use it to purchase interest paying or dividend shares instead of a traditional brokerage account to avoid this. Of course, you should always consult a professional before making any major investments.
2. Avoid Capital Gains Taxes
Capital gains tax does not just apply to the top 1%. The average investor can also face the downside of this tax in two forms: short term and long term capital gains tax. Short term tax is applied to winning investments that are sold after under one year. Long term capital gains tax is applied when you sell after the year is up. Short term capital gains tax treats the investment as income and taxes it at the same rate. However, long term can be different and far less depending on the amount of the investment, your income, and other factors.
3. Sell Losing Investments by the End of the Year
Just as winning investments are taxed, losing investments can be deducted. You may report the bad investments as a loss on your taxes. You may also carry losses forwards as you like and use them for any tax year you like. However, there may be a cap as to how many dollars in losses you can deduct per year.
4. Max Your Contributions
Each year you are allowed so many dollars to invest in your retirement that the IRS will not count as taxable income. This includes:
- IRA Contributions.
- 401 (k) Contributions.
- Health Savings Account Contributions.
You may view the limits for these and more on Investopedia.
How to Minimize Tax Burden on Investments for 2022 in Houston
Finally, those who live in Houston or the surrounding area may contact B&J Bookkeeping and Taxes to make sure you are minimizing your tax burden for investments and more. We proudly serve businesses, individuals, and professionals make the most of their investments.