Understanding how to file your taxes as an individual investor can get confusing. You can take some deductions but not others, and always have to report your profits. You should have annual assets appraisals completed for tax purposes as well. Here are some basic tips for individual investors.
View your investment portfolio and identify any unrealized losses. They become realized when you make the choice to sell them off. You can deduct these losses to help offset some of your capital gains. Capital gains are taxed, so reducing your potential tax liability is ideal.
Here’s the kicker – if you sell more losses than you have gains, an additional $3,000 in capital losses can be taken to offset traditional income.
Make IRS-Approved Organization Donations
Investors don’t only spend money to make money they also donate to charities. This is mostly because of the tax deductions. In order for your donation to count, it has to be to an IRS-approved non-profit organization or charity. Property and cash both count as allowable donations.
Hold Off Purchasing New Mutual Funds Shares
Mutual funds gains are calculated in December. The sale of stock is calculated and gains are set for distribution. You may think about purchasing new shares before you are aware of your gains. Wait until your distribution is set and purchase new shares with all or part of your distribution amount.
The three tips above should help you reduce your tax liability. They can also help you prevent audits and major mistakes. Investment tax law is updated regularly; it is important to refresh yourself each year with the updated laws.
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