Tax Tips

While it is important to know which investment options are available at the moment, it is also important to cover tax tips for different types of investment.

1. Bonds

Bonds are issued by many authorities and institutions. Depending on bond type and other conditions it can be fully taxable or tax free.

Corporate bonds (bonds issued by a corporation) are fully taxable. These bonds pay highest interest rate though.

Municipal bonds are tax free at all levels only if investor resides in the same state as the bond issuer.
However if investor resides in another state, then his interest is taxable on his state income tax, but not on federal tax.

Government bonds are subject only to federal taxes, but not to local state taxes.

Tip to reduce bond taxes: Even though government bonds are not taxable it doesn’t mean that those bonds are the best choice, because their interest rate is usually lower than other bond types can offer. When selecting which bond to buy you should calculate and compare expected yearly profit of government bonds and expected yearly profit of other bonds ( in this case don’t forget to subtract taxes in order to see pure profit). Thus you will be able to make the right decision.

2. Precious Metals

Precious metals are taxed in the majority of countries. Tax usually does apply when precious metals are being sold at a profit. However taxes on precious metals vary by state or country. It also can vary depending on what type of precious metal you hold and want to sell.

Tip to reduce precious metal taxes: Look for countries (or state) with lowest precious metal taxes to sell your holdings.

3. Certificates of Deposit

Interest earned with certificate of deposit is also taxable. It is a subject to taxes on a federal level. However taxes must be paid only when interest is accrued into your bank account.

Tip to reduce taxes on certificates of deposit: Do not withdraw your money before certificate of deposit matures, because then you will have to pay penalty for early withdrawal ( it is usually around 10%, leaving you with negative profits in most cases).

4. Mutual Funds

Mutual fund taxes is a bit more complex subject, because it includes taxes on interest and taxes on capital gains. Both types of taxes are subject to taxes on a federal level and in most cases on a state level.

Tip to reduce precious metal taxes: Mutual funds with high turnover are subject to higher taxes and therefore it will cut your gains. So instead of looking for mutual funds with yearly turnover of 100% or more look for mutual funds that that have yearly turnover of 20% or less ( for example index funds).

You must remember that tax rates are constantly changing and new tax laws are being constantly introduced. As a conclusion it would be better to contact your local tax advisor for more actual and precise information on taxation as well as for advanced options on how you can legally reduce your taxes.

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