Tax Tip

4 Ways to Pay Less Taxes on Your Investments

If you’re considering jumping into investing (or have already started), you need to know the tactics to avoid paying massive amounts of taxes on them. We’ve compiled a list of tax tips for investors. Check them out.

by Austin Distel

Hold investments for longer than a year

Whenever you make money off your investments (aka capital gains) you are taxed on that income. However, the length of time you held the investment dictates the rate you’ll be taxed at.

These taxes, called capital gains taxes, change at the year mark. If you hold your investments for a year or less, you’ll be taxed at the short term capital gains rate, which is the same rate as income tax.

But if you hold your investments for a year and a day, you’ll get taxed at a more manageable long-term capital gains rate.

This rate can get as high as 20% for big earners, but it’s more likely you’ll pay somewhere between 0 and 15%.

Buy Municipal Bonds  

Buying bonds means you get to collect interest on those bonds, which is a great source of passive income if you buy enough.

But unless you buy municipal bonds, the IRS is entitled to a share of that interest. When you buy either city, state, or county bonds, you are exempt from paying federal income tax on those bonds. If you buy municipal bonds in your home state, you’ll be exempt from state and local taxes as well.

One thing to note is that if you sell your municipal bonds for a profit, you’ll have to pay taxes on the gain.

Sell Losing Investments   

If you’re losing money on a particular investment, you might want to consider selling it off.  Investment losses offset capital gains, so if you make $2,000 and lose the same amount, you won’t have to pay on the amount you’ve lost.

In addition, if your investment losses exceed your gains, you can use them to offset up to $3,000 in taxable income.

Put Your Money in Tax Sheltered Accounts  

Putting your investment money into tax-sheltered accounts is a great way to defer paying taxes on various investments.

Accounts like 401(k)s, 403(b)s, and certain IRA plans aren’t tax-free, but you won’t have to worry about paying taxes until you start making withdrawals. By the time you do that (barring some emergency), you’ll likely be in a lower tax bracket anyway.

 

Have more questions about investments and taxes? Shoot us an email or give us a call.

1099, W2, W4, W9 – what’s the difference?

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Fill out this 1099 form. Did you get your W2 from your employer? Fill out this W4 form.

Keeping all the tax forms straight is a challenge. In today’s post, we go through the difference between the most commonly filled out tax forms. That way, you know what you’re signing and why.

Form W4

This is the form that you fill out at the beginning of most conventional employment. The purpose of this paper is to let your employer know how much tax money they should withhold from your paycheck. You can also use this form to adjust your withholdings throughout the year.

Form W2

This is the magical form most of us are waiting on to get started with our taxes. It shows your yearly income and how much was withheld – critical information for both you and your accountant.

Form 1099  

This is a form you receive in any non-conventional payment situation. Basically, if you make money as an independent contractor or self-employed taxpayer, you will receive a version of this form.

If you are working as a contractor, business, or have received money from the government, bank, etc, you will likely get one of these. There are a lot of versions of this form, including:

  • MISC, Miscellaneous Income

  • G, Certain Government Payments

  • K, Payment Card and Third Party Network Transactions

  • R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

  • DIV, Dividends and Distributions

  • INT, Interest Income

Form 1098

There are a few versions of this form from income or payments to institutions like universities and banks. The most common forms of these are:

  • 1098-E, Student Loan Interest Statement

  • 1098-T,  Tuition Statement

  • Mortgage Interest Statement

Schedule K-1

This form reports any income, deductions, or other tax items you might receive as part of a business partnership. You will usually have to wait until later in the tax season to receive this form.

Have a form that’s not covered here? Reach out to us.

How Moonlighters Can Get Enough Tax Money Withheld

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If you were left surprised (and maybe a little hurt) from your latest tax return and you work as both a W2 employee and have 1099 side gigs, this article is for you.

The Current State of the Side Hustle

The side hustle is a common part of our society today. The latest figures say that nearly 40 percent of Americans have a side job that brings in $8,200 or more each year.

People who work a side job are more likely to be millennials, apparently working more than one job is something that is less common as you age.

And while the extra money is nice, these side hustles make it that much more complicated to do your yearly taxes. If you make more than $600 at any job, that money is taxable.

That’s why its good to get a head start by adjusting your W2 withholdings to help cover the income from your side hustles. Otherwise, you’ll undoubtedly owe

How Do You Do This?

The recent tax law changes impacted many taxpayers, so the IRS created a withholding calculator.

It’s an easy-to-use tool, you just need to come prepared with the proper paperwork.

That includes:

  • Any and all recent pay stubs and invoices(make sure it includes the amount of federal taxes withheld for this year so far
  • A completed copy of your 2018 and 2017 returns

Then open the calculator and answer all the questions. You may not be happy with the amount of taxes you have taken out, but you’ll happier come tax time, so you won’t owe for all your hard work in 2019.

Any U.S. tax advice contained in the body of this website is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.