While investments can be incredibly helpful in helping with your financial goals, it is important to consider how they will be taxed. To some people that may sound intimidating to imagine your investments being taxed, but fortunately there are strategies that can help reduce or even eliminate your taxes. Let’s explore these strategies so you can make investments you care about while also keeping as much as the profit as possible during tax season.

How Investment Taxes Work

Investment income taxes work differently from the average taxes that are taken from your wages. The differences aren’t just regarding the tax rate themselves, but also how the taxes are assessed. In general, investments generate income in two different ways and each way is treated differently.

• Capital gains, which are an increase in the price of an asset, are taxed once they have been realized. For example, stock and real estate investments.
• Dividends or cash income is money that is received throughout the year, and those are typically subject to being taxed for the tax year they were received.

 Any investor who wants to minimize the taxes on their investments should consider these typical standards.

Tips on Minimizing Investment Taxes

• Practice buy-and-hold investing. This means that rather than selling investments for cash, you won’t be liable for capital gains taxes. You can also defer your taxes by holding them indefinitely.
• Consider where your assets are located. As previously covered, dividend and cash income investments are typically taxed the year they’re received. When you use a taxable account, you won’t be able to avoid high taxes as easily as you can with capital gain investment. Therefore, you should consider where your assets are being held.

Making Meaningful Investments

We have covered previously how you can make investments that are meaningful to you, but to quickly recap, it can be helpful to consider your own personal values before making any investments. Investing can be a good thing, but it might not feel fulfilling to you if you are making investments just for the sake of the investment gain. Think about what causes and what company ethic and morals you would feel comfortable investing in.

Final Thoughts

Minimizing the taxes that are taken out of your investment gains is easier than you might think, especially once you understand how taxes are taken out of investments. If you are considering getting into faith-based investments and want to speak to an expert, we would love to help you. Contact us today.

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