3 Strategies to Reduce Your Investment Taxes

There are many benefits to investing. For instance, you build a nest egg for your retirement. You help fund your children’s college education. Plus, when you invest in a small to medium-sized business (SMB), you provide them with the necessary capital to continue operations. 

Whether you fall under the 53% of investors in the stock market or contribute to other sectors, you know it’s a waiting game. Not only to bypass the constant ups and downs of the markets. It’s also done to avoid losing your returns due to taxes. 

Fortunately, there are ways to minimize these contributions to the government. Here are three strategies to reduce your investment taxes. 

1. Create a Trust 

Trusts are a way for investors to transfer assets out of their estate. This could be in the form of property, a business, or money. A trustee and a fund manager supervise the trust so its value is maintained or increased. 

An advantage of a standard trust is the ability for its recipients to be sheltered from an estate tax after your death. Certain conditions must be met to avoid this form of government collection. 

Furthermore, if the trust allows it, you have the power to remove assets as an annual exclusion gift. Here, you avoid the gift tax if you withdraw less than $15,000 as an individual or $30,000 if married. 

Since there are many trusts available, the ways to reduce your investment taxes vary. A good option for those who live in Deleware is the Delaware Statutory Trust (DST). Trusts like these are good because you can defer capital gains taxes on them.

To do so, you must invest your proceedings into professionally-managed institutional real estate. For instance, several apartment complexes or businesses rather than one of each. Organizations like Kay Properties & Investments have much more information on the DST.

2. Pay for Higher Education With a 529 Account.

The 529 account has become a popular way to save for your child’s higher education goals. Although your investment in the plan isn’t deductible at the end of the year as those in a Roth IRA, the money you add grows tax-free. As a result, your child utilizes the account’s entire value for their years in college or university. 

Additionally, a 529 account is transferrable. In other words, if your oldest child doesn’t use all of the available funds, then it could be put under the name of your next oldest. There’s no tax penalty for this transfer. 

3. Enroll in a Health Savings Account

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A Health Savings Account (HSA) is one of the few investments that is tax-free. Fee collection isn’t made when you add funds. Nor are taxes removed when you withdraw money due to a medical need. 

Before taxes are applied to your paycheck, the funds for your HSA are removed and added to the investment. On top of maximizing the money in the account, this also helps to reduce the value of the taxable gross pay. Thus, you also receive more from your paycheck. 

Unlike a Flexible Spending Account (FSA), the HSA doesn’t have a ‘Use it or Lose it’ policy. To put it another way, if you have money left in your HSA it isn’t removed at the end of the year to start over. It rolls into the new year. As a result, you can build a sizable amount in the account if you don’t use it. 

In a way, the HSA could be considered one of the best retirement funds. No matter how much is in it, you have the power to withdraw the money at any time to handle large medical bills. This comes in handy later in life when a major issue could take place. 

The three strategies mentioned above aren’t the only ways to reduce your investment taxes. For instance, maxing out your IRA each year helps your money grow in a tax-free environment. When you invest in municipal bonds the accused interest is exempt from federal taxes. 

Needless to say, don’t jump into any investment without thorough research on what it does and its plusses & minuses. Besides researching the internet, reach out to an investment specialist who will help you understand your options. Through this, you can build a strong portfolio with a minimum of tax collection. 


  • About Me

  • Duke Brighton. Today I’ve got a great partner, a beautiful daughter, a stable job in finance and a fun side hustle in e-commerce. It wasn’t always like that though. I struggled for years and always seemed to make the wrong choices of what to do and whose advice to take. Late in my 20s, I found the right mentor and everything changed. I learned there are no shortcuts and if it sounds too good to be true, it probably is.

    I don’t know what your situation is like today, but I know there is someone out there who can guide you well. It’s my goal to help make that information accessible.