Tax Tips For The Individual Investor

Tax Tips For The Individual Investor

Tax-Deferred Programs Are Like Free Money
Every time you trade a stock, you are vulnerable to capital gains tax. Making your purchases through a tax-deferred account can save you a pile of money. Tax-deferred accounts come in many shapes and sizes. The most well known are individual retirement account (IRA) and simplified employment pension (SEP) plans. The basic idea is that you are not taxed on the funds until you withdraw, at which point you are taxed at the rate of your income tax bracket. Waiting to cash in until after you retire will save you even more because your income will likely be lower when you are no longer working and earning a steady income.

Also, while the benefits of tax-deferred accounts are substantial on their own, they provide an additional benefit of flexibility, as investors need not be concerned with the usual tax implications when making trade decisions. Provided you keep your funds inside the tax-deferred account, you have the freedom to close out of positions early if they have experienced strong price appreciation, without regard to the higher tax rate applied to short-term capital gains.

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