Taxes are important to consider when choosing how, when, and where to invest. The decisions you make could significantly impact how you are able to reach your goals. The better investment choices you make, the more progress you will make for your future. At TruNorth Advisors, we want to help you reach your goals without being delayed unnecessarily by taxes. When you have a high federal income tax rate, you can benefit even more so by taking advantage of tax-smart investment opportunities. Consider the following strategies to help you minimize your taxes and maximize your gains:

Prioritize Investing in Tax-Efficient Accounts—Contributing to IRAs and 401Ks can lower your taxes both now and in the future. Thankfully, traditional IRAs are tax deductible and traditional 401ks allow you to make pre-tax contributions, which lower your current taxable income. There are limitations on how much can be contributed though. Traditional IRAs and 401ks can have tax-free or tax-deferred growth potential, which will be beneficial in the future. If you are unsure about your options for maximizing IRAs and 401ks, our team will be happy to help.

Keep Your Accounts Diverse—When you spread your investments into different options, you can minimize your tax burden. Your finances could be spread between traditional IRAs, Roth IRAs, and brokerage accounts. All these opportunities have different long-term benefits. As previously mentioned, traditional IRAs have tax-deferred growth potential. Roth IRAs can potentially grow without being federally taxed depending on the account owner’s requirements. Brokerage accounts have taxable growth potential. With the right combination of investments, you can conserve and grow your finances. Diversifying your accounts can help you be prepared if your tax rate is lower or higher in the future.

Explore Tax-Efficient Investments—There are many different opportunities which could be beneficial for your taxes. Consider the benefits of mutual funds, index funds, municipal bonds, and exchange-traded funds. Some of these options may be tax-free at the federal and/or state level. At TruNorth Advisors, we can help you find the most suitable options to fit your circumstances.

Place Your Investments in The Right Account Type—The goal is to maximize your benefits and minimize your tax liability. For example, if you have investments that regularly generate taxable income, such as taxable bonds or stock funds with high turnover rates, could be better maximized by placing them in tax-deferred accounts like traditional IRAs. If you are unsure if your investments are consistent with reaching your long-term goals, reach out to TruNorth Advisors for guidance and support.

Avoid Capital Gains Whenever Possible—Avoiding taxes may not always be a good reason to hold a stock, but it certainly can be wise if you will be subject to significant capital gains taxes. Holding a stock for at least a year to avoid capital gains taxes may be worthwhile long-term.

Utilize Tax Loss Harvesting—Depending on how your investments have done over the year, you may be able to use tax loss harvesting to your advantage. If your losses exceed your gains, you can offset up to $3000 of your taxable earned income.

Tax responsibility should not be the only consideration when investing for your future but being intentional with tax-smart strategies can be beneficial for reaching your goals. If you are interested in learning more about how to minimize your liability and maximize your investments, schedule a consultation with TruNorth Advisors.