Effectively managing your investments can be complicated, especially when it comes to thinking through taxes. We’ve previously shared how taxes can significantly impact your investment returns. This week we cover how you can use your investment portfolio to optimize your capital gains and income tax.
What you need to know 🧠
Capital gains tax: This is paid on any investment profits. If you buy a stock for $1,000 and sell it for $2,000, you will pay tax on the $1,000 of profit come tax season. Holding the investment for at least a year allows you to pay lower tax rates.
Ways to reduce it or avoid it:
- Invest through certain types of investment accounts, like retirement accounts.
- Use your investment losses to offset your gains, maintaining investment exposure. This is also referred to as tax loss harvesting.
Ordinary income tax: Most of us pay the majority of our taxes on our salaries. But your investments can also help you reduce this major tax.
Ways to reduce it or avoid it:
- Maximize investments in retirement or other tax-advantaged accounts.
- Use up to $3,000 in investment losses each year to reduce the tax you pay on your ordinary income.
- Carry any losses in excess of $3,000 to future years to continue reducing your taxable income.
As your 2023 taxes come into focus, we’ll be covering each of these aspects so you can maximize your savings before year-end. 📅
How can Mezzi help? 🤝
Feeling overwhelmed? We’ve got you covered. Mezzi automatically reviews your investments and provides suggestions to reduce your taxes and optimize your returns.
Start saving on your taxes today with our:
- Guide to reducing your capital gains tax 📘
- Suggestions to sell stocks with losses 💡
- Tracking of potential ordinary income deductions (coming soon) 📌
- Suggestions to carry forward losses (coming soon) 🔄
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