For most investors, paying capital gains tax seems inevitable. After all, it’s all about profit, right? But what if there were legal ways to minimize those pesky tax burdens and put thousands of dollars into your pocket each year?

With some strategic planning and tax smart moves, you can take more control of your investment tax liability.

This article shares five proven strategies to save $2,500 or more in taxes each year. This money can be invested over time and continue to pay you dividends.

Let's start!

Learn about capital gains tax

We offer several types of taxes, but these apply to profits from the sale of investments. This includes stocks, bonds, mutual funds, precious metals, investment properties and other assets that appreciate in value.

Depending on how long you hold the investment, returns are divided into short-term gains and long-term gains.

Short-term gains: These gains come from assets held for one year or less and are taxed at ordinary income tax rates.

Long-term profits: From investments held for more than a year, more favorable capital gains rates apply, currently up to 20% for high earners.

As an investor, these taxes directly reduce your returns. This means that strategic tax planning can save thousands of dollars over a typical investment period. Now is the time to take action.

5 Proven Strategies to Reduce Capital Gains Taxes

While investment income is always taxable, the extent of your tax liability often depends on sound planning and decision-making.

These five proven tax strategies can reduce your taxes and give you more of your hard-earned profits:

1. Harvest from tax losses

Selling losers sounds counterintuitive. But tax loss harvesting converts investment losses into direct tax gains.

If you're consciously aware of this, you can offset taxable gains and deduct up to $2,500 of the loss from regular income. This is lemonade!

Search your portfolio strategically:

● Tax Savings Ugly Duckling: Identify companies that are underperforming and below cost basis. These crops have matured and there will be crop losses.

● Offset Profits: Offset a losing position to offset the taxable profits you have already made this year.

With some clever timing during tax filing season, collecting tax losses starting April 15 can save you hundreds or thousands of dollars. Don't let these losses go to waste!

2. Maximize retirement accounts

Have you ever wished you could protect part of your portfolio from the taxman in the tax-free bubble? Retirement accounts offer the next best thing by deferring taxes or exempting growth and gains.

Take advantage of this unique tax treatment by:

● Contribution up to limits: Maximize the annual contribution room in your 401(k), IRA, or other retirement plan available to you.

● Plan ahead: Review limits in January to develop a financing strategy for the current tax year.

● Strategic Investing: Allocate retirement account assets to investments most likely to generate taxable gains in taxable accounts, essentially protecting the best performers.

Tax-advantaged accounts are the perfect complement to strategic loss management and long-term holding. Two pillars of a good tax strategy.

3. Long-term holding

Patience pays off when it comes to capital investment tax! Qualifying your earnings for long-term capital gains rates can instantly cut your tax bill in half or more compared to ordinary income.

Simply:

● Resist the temptation to change your portfolio in pursuit of short-term gains.

● Take “buy and hold” positions in most assets you hold for more than a year before eventually selling.

● Use options such as tax loss harvesting to offset short-term gains made before an asset reaches long-term ownership status.

Think long term, plan strategically, and take your time to reduce taxes!

4. Strategically gift assets

Do you want to avoid capital gains taxes while doing good? Kill two birds with one stone by gifting a treasured item to your favorite person or cause!

Smartly gift assets to:

● Inheritance: Passing an appreciated asset to a child or family member in a lower tax bracket and avoiding capital gains taxes when the asset is eventually sold.

● Charity: Donate shares or funds directly to a qualified charity, potentially deducting the full market value while avoiding capital gains taxes.

The impact of giving away valuable assets is twofold. Do good things for others while hiding from the tax inspectors!

5. Investment Opportunity Zones

Imagine a near-tax-free investment bubble that lasts 10 years or more. Too good to be true? Opportunity zones provide exactly this type of tax relief to spur investment in designated crisis areas.

Benefit from significant tax benefits by:

● Tax deferral: Defer capital gains taxes on a recently sold property by reinvesting the proceeds in an Opportunity Zone project within 180 days.

● Tax Reductions: New Opportunity Zone investments receive partial tax relief the longer they are held, up to a complete exemption from new profits taxes after 10 years.

Opportunity Zones allow you to align investments with your values ​​while reducing capital gains taxes. It's a win-win situation!

Putting it all together: Developing your capital gains tax strategy

With careful planning, investors can take control of investment taxes rather than simply accepting their inevitable drag on returns.

Work strategically with your tax advisor to evaluate which strategies fit within your overall financial plan.

The time and effort is well worth it as you can save thousands of dollars in taxes each year and invest more money for the future.