5 Tax Tips Investors Might Be Missing In 2016

It’s that time of year again when traders have to tally up how much of last year’s gains get kicked up to Uncle Sam on tax day. Maybe you missed the boat on this year’s filing, but here are five tax tips for investors to keep in mind for next year.

1. Max out 401(k) contributions

It may be scary to give up access to your hard-earned money until you’re 55 years old, especially for younger investors, but the more of your annual income you can contribute, the more tax savings you’ll enjoy.

Contributions into 401(k) accounts occur prior to taxation, meaning that contributors can not only potentially pay a lower tax rate on that income upon withdrawal, the investment can also be put to work generating returns prior to taxation. And it’s not like the money is completely locked away. In the case of an emergency, early withdrawals are simply subject to a harsh 10%-plus early withdrawal fee.

2. Time your sells

It’s certainly not advisable to be holding onto bad investments or grossly over-priced assets simply for the sake of paying lower taxes on the sale, but if you are simply rebalancing your portfolio or upgrading from one stock to another, be mindful of any stocks you may have owned for nearly one year.

Profits from the sale of stocks within a year of purchase are taxed at the ordinary rate of 35%, whereas proceeds from sale of stocks held for more than one year can be taxed at a rate as low as 15%.

3. Balance Profits And Losses

Again, the end of a calendar year shouldn’t be the primary reason for buying or selling stocks, but if your investment strategy involves some flexibility, selling certain stocks at the end of the year could help reduce your tax bill.

If you’ve been looking for a good time to dump a losing investment, locking in those losses before the end of the year allows you to reduce your capital gains for that year by the amount of the loss. In addition, up to $3,000 of capital gains losses can be subtracted from ordinary income each year.

4. Consider A 529 Plan Contribution

If you have young children or are anticipating having to foot a college tuition bill someday, a 529 plan allows you to put your savings to work completely tax-free.

Although contributions to a 529 plan are not deductible, the income that the plan draws will never be subjected to federal tax if it is used for college expenses.

5. Don’t Forget About Broker Fees

The $10-20 fee that your broker charges each time you make a trade may seem like a negligible amount when it comes to your year-end tax bill, but those charges add up quickly, especially for day traders.

Remember to subtract the trading fee from the cost basis of every stock you buy and the gains of every stock you sell. These fees can add up to thousands of dollars per year, and subtracting them from gains can have a meaningful impact on your taxes.

As always, the best tax tip for any investor is to discuss your individual financial situation with a tax professional.

Lightspeed Financial Services Group LLC is not affiliated with these third-party market commentators/educators or service providers. Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content is solely based on the users independent analysis taking into consideration your financial circumstances, investment objectives, and risk tolerance. Lightspeed Financial Services Group LLC does not endorse, offer nor recommend any of the services or commentary provided by any of the market commentators/educators or service providers and any information used to execute any trading strategies are solely based on the independent analysis of the user.

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