Traders are exceptionally skillful in their ability to find ways to increase their income. In addition, they can build complex strategies in order to end up with big profits. Therefore, it is not surprising that where they can reduce the cost of paying taxes, they do it masterfully. And they reach the aim of tax reduction with the help of completely legal methods. But to do this, it is necessary to know tax saving investment options.
Method #1: Sell and Buy Again
To reduce your taxes you should know how they are calculated. Only your net income will be taxable: gains from the stocks sold minus the funds spent on their acquisition. Unsold by the end of the year stocks are not taken into account. Here is the secret of one of the ways of tax reducing investments:
- find shares in your investment portfolio prices on which are currently decreasing
- sell them
- get a financial loss
- now feel free to deduct this loss from the taxable amount
- buy them again even cheaper
As a result, the formula looks like this:
profit from the sales + the tax saved – commissions on selling and buying again that stocks which had fallen in price.
Method #2: Make Tax-free Investments
Another method of tax optimization for traders is to create tax-free assets in their portfolios. The advantage of this method is that these benefits are provided directly by the legislation. Each country defines what is tax free investment according to its own priorities. However, the general list can include the following positions:
- Buy municipal bonds and lend your money to state authorities. Funding different public projects you not only save your money but also participate in improving the conditions of life of your societies.
- Prefer long-term investments in stocks since they have low rates for taxing. Short-term investments have another formula of taxing that is less beneficial.
- Create your business and deduct different costs connected with its development from the taxable income.
- Invest in health insurance programs and retirement programs.
- Join charity activities.
Method #3: Keep Your Money in Offshore Tax Havens
Evade taxes on stock gains with offshore brokerage account. This is an account that stores your money in offshore tax havens: the state cannot tax them. One of the advantages of taking money offshore is that banks do not provide information to government agencies. Therefore, your income can be kept in secrecy. Of course, if there won’t be any Panama kind of scandal.
Method #4: Delay Your Tax Payments
Since the broker plays the role of the intermediary for your stocks trading deals, it deducts your taxes when you withdraw money from the account. However, you can withdraw some amount of your funds that is less than the sum of taxes for a particular year. In such cases, the broker will take only a percentage needed for paying tax from this amount, not the whole sum. Let’s look at the abstract example:
- You have earned 1000 of any currency as stock gains by the end of the year.
- Let’s assume that you have to pay 10% for taxes.
- If you want to withdraw 120 units of currency, the broker will take the entire amount of 100 units for paying taxes.
- But if you withdraw 70 units, it will take just 7 of them (which represent 10% of the sum).
These are just some simpler ways to avoid taxes. You can come up with your own strategies, the main condition is that they should be legal. Take advantage of the multiple opportunities to save your money from stock gains. These lucky chances are provided by loopholes in the financial and legal system. To see and use them is a kind of art for experienced traders and investors.