It seems like just yesterday we were filing our tax returns are wrapping up the 2011 year (unless you’re Mitt Romney, who still hasn’t filed his 2011 taxes). However, there is no better time than the present to start thinking about ways to minimize your 2012 taxes. Because we all hate paying taxes, and there are definitely some easy ways to make it bite less! Here are some simple things to consider!
Minimizing Capital Gains Taxes
This doesn’t mean earn less, but simply means be mindful of where you earn your money. If you are planning on investing for price appreciation, be aware that when you go to sell, you will pay capital gains taxes on the difference. And right now, those rates are just 15% for long term capital gains, but there are other factors to consider:
- Capital Gains Tax 2013 Rates May Go Up
- The Obamacare 3.8% Tax on Certain Investment Income
Tax Deferred Accounts
Speaking of tax deferred accounts, these can be great ways to minimize your 2012 taxes. The main types of accounts are 401ks and IRAs, but there are a lot of variations that also qualify for tax deferred treatment.
If you are planning on investing for capital gains, put your money here. Also, if you are investing in a large dividend paying stock or other cash flow investment, like a REIT, an IRA or other tax deferred account can be a great way to do it. While dividends are also treated in a different way, you could still face taxes if you don’t shelter them properly.
Tax Advantaged Investments
Finally, if you can’t invest in a tax deferred account, you can still invest in tax advantaged investments. These are products that are designed to minimize your tax liability each year. A common type of tax advantaged investment is a municipal bond. If you buy a qualifying municipal bond or municipal bond fund, you are usually exempt from state and federal taxes. This can be a huge benefit.
There are also tax advantaged mutual funds and ETFs, which keep portfolio turnover to a minimum, which helps prevent capital gains payouts at the end of the year, thereby reducing your tax liability.
What other ways can you start minimizing your tax liability for next April?