Taxes and Investing: Three Things to Consider

We are now into a brand new year. Right in line with this is tax season. We all have the next three and half months to prepare and file our tax returns. As taxes are on the minds of all Americans, here are three things to consider regarding  savings and investments.

Taxes on savings and investments can hurt or reduce returns in the short run. More importantly, these can have a significant impact on long term
results. This is why investors, when making choices, should focus on these strategies.

Taxes on savings and investments can be deferred, reduced or eliminated. Here is closer examination of all three:

Number one: Deferring  taxes. This involves tax favored plans like IRAs, workplace retirement savings plans (like 401ks or 403bs) and tax deferred annuities. The whole idea is allowing savings and investments to grow more rapidly by delaying taxes on earnings and gains. You have more dollars working and the potential result can produce a significant advantage.

Number two: Reducing taxes. This can be accomplished through deductions against income. Charitable giving is substantial in America and investors can benefit when donating to their chosen charities and churches. Additional advantages come through donating appreciated securities instead of cash. This can produce both a reduction against income as well as avoidance of paying capital gains taxes.   Also, many retirees, when needing to take a required annual distribution from their retirement plans, can donate directly to charity and reduce the impact of that income.  Also, many financial institutions now offer charitable giving solutions through donor advised funds which provide for an immediate tax deduction while establishing a fund for future charitable contributions.

Number three: The elimination of taxes on investments. The most common way to achieve this is through investing in tax free municipal bonds. The annual income that these generate is free from federal income taxes (and also state, in some states). This third strategy is popular with more conservative savers and investors and for individuals who find themselves in higher income tax brackets.

If you would like to learn more on these and other tax savings strategies, please join us at our next luncheon presentation at The Vue on 30A on Wednesday, January 25th.

Maurice Stouse is a Financial Advisor with Raymond James & Associates, Inc. 34851 Emerald Coast Pkwy., Suite 200, Destin, FL 32541. Raymond James & Associates, member New York Stock Exchange/SIPC. Phone 850.650.0990.

Views expressed are the current opinion of the author and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or a loss. No investment strategy can guarantee success.

While interest on municipal bonds is generally free from income tax, it may be subject to the federal alternative minimum tax, or state and local taxes. In addition, certain municipal bonds (such as Build America Bonds) are issued without a federal tax exemption, which subjects the related income to federal income tax. Municipal bond investments may involve market risk if sold prior to maturity, credit risk and interest rate risk. Changes in tax law may occur and at any time could have a substantial impact upon each person’s situation. While are familiar with the tax provisions of the issues presented herein, as financial advisors of Raymond James & Associates we are not qualified to render advice on tax or legal matters.