Tax planning is crucial for investors to maximize returns. The tax oriented investments list pdf 2020 provides key insights into how to legally minimize tax liability. By understanding tax rules and utilizing strategies like capital losses, retirement accounts, municipal bonds, etc, investors can reduce tax burdens. Proper tax planning requires reviewing income sources, optimizing deductions, avoiding penalties, hiring professionals, and staying updated on latest tax policies. With the right tax oriented investments and proper planning, investors can achieve better after-tax returns.
Capitalize on Capital Losses to Offset Gains
One of the most effective tax planning strategies is utilizing capital losses to offset capital gains. By realizing losses in stocks/funds towards the end of the year, investors can offset realized gains earlier in the year. This results in lower net capital gains and thus lower taxes. However, there are limits on how much net loss can be claimed each year. Investors must also avoid ‘wash sale rule’ violations when selling at a loss and repurchasing the same security within 30 days.
Max Out Retirement Accounts
Contributing to tax-advantaged retirement accounts like 401(k)s and IRAs can substantially reduce taxable income. These accounts allow tax deferred growth and have annual contribution limits. IRA contributions can be deducted from taxable income. 401(k) contributions are made pre-tax. Required minimum distributions start at age 72 to avoid tax deferral indefinitely.
Consider Municipal Bonds
Municipal bonds offer tax-exempt interest income. They are issued by state/local governments to fund public projects. Interest income from municipal bonds is exempt from federal taxes and state taxes from issuing state. High income earners who want to reduce taxable investment income can allocate a portion of their portfolio to municipal bonds.
Invest in Insurance Products
Certain insurance products offer tax advantages. Earnings from permanent life insurance grow tax-deferred. Withdrawals from annuities are only taxed on gains. Long-term care insurance can qualify for medical expense deductions. By optimizing insurance holdings, investors can reduce tax liabilities.
Donate Appreciated Assets
Donating long-term appreciated assets like stocks to charity leads to tax benefits. Investors can deduct the full market value while avoiding capital gains tax that would otherwise apply by selling the assets. This is more tax efficient than donating cash. Donation carryforwards can also be used to deduct across multiple years.
The tax oriented investments list pdf 2020 demonstrates key options investors have to minimize taxes like capitalizing on losses, maximizing retirement accounts, municipal bonds, insurance products, donating assets, etc. With proper tax planning including the right investments and proactive loss realization, investors can substantially improve after-tax returns.