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Reducing Taxes on Investments

January 18, 2023

Achieving a comfortable retirement often comes down to investment performance and tax burden. However, it’s a tricky task to balance investment gains with a tax-minimization plan. If you expect your investments to perform well, you may have to accept more taxes paid when you cash out your investment, and you may even find yourself in a higher tax bracket when you do so.

Capital gains taxes are taxes levied on the sale of an investment that had appreciated in value. Essentially, you may owe up to 20% in taxes on gains earned from a successful investment depending on your taxable income for that year! Although it’s important to make smart investment decisions, it’s also important to consider each opportunity’s tax situation so that you don’t end up owing more than you thought on a great investment.

One strategy that can help you defer your taxes on investments is the tax-loss harvesting strategy. This strategy essentially allows you to write off investment losses in the form of a tax credit of up to $3,000 per year.

The tax-loss rule states that your investment losses offset investment gains by their dollar values. For instance, if you had an investment whose value was set to give you a $10,000 gain and a different investment that was taking a loss of $3,000, you could sell the losing asset, pay no capital gains taxes, and receive the investment loss tax credit. Then you could reinvest both the tax credit and the sold investment into a new investment or the same one to continue growing or rebound from its low prices. In a way, it’s a small incentive to sell a losing investment for current-year tax purposes, then reinvest it to benefit from a rebound in the future. In addition, you can even apply investment losses to your income taxes. These losses can also be applied to any year you wish.

The other tax-optimization strategy you can take advantage of is the like-kind exchange rule for real estate. This rule allows you to defer taxes on real estate sold if the proceeds from the sale are reinvested in a qualified similar asset, such as another real estate property of similar value if done so within 180 days.


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This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products. Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results. Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.