Simple Tips to Reduce Taxable Income

Just about everyone would really like to reduce his or her taxable income. Well, believe it or not, it’s actually not hard to do so, especially if you’re someone who has investments.   

The first step for reducing taxable income is to make sure that your investment accounts are varied. Ideally, you should have both tax-free and tax-deferred accounts for maximum tax benefits

This simple strategy, known as asset location, works for a variety of reasons, including the facts that:

l  You’ll enjoy lower taxes on both long-term capital gains and qualified dividend income if you have varied accounts

l  Outside of those related to your retirement account, you won’t have to report interest income or short-term capital gains as taxable unless you make an account withdrawal

l  Outside of retirement accounts, you can sell losing investments for capital losses

As you can see, having a wide variety of different types of investment/retirement accounts can really work in your favor. Of course, just going out and open a bunch of varied accounts isn’t the way to go about it if you want to receive maximum benefits.You have to be strategic and know what you’re doing!

If you need a little help with that “knowing what you’re doing part,” and, let’s face it, most of us do, don’t worry! There are skilled tax professionals/financial advisers out there who will gladly help you to make the smartest choices for your situation- choices that will help you to diversify your investment portfolio and to receive maximum rewards as a result.