If you want to maximize your stock market return, you need to know how to avoid tax on your stock market profits. The stock market is a great way to mark short- and long-term investments and expecting a great return. However, the dreadful capital gain tax on those investments can reduce your return. Fear not because there are ways you can reduce and avoid tax on your stock market profits.
Things you'll need:
- 401k or Roth IRA
- Long-term stock purchases
- Dependant students (optional)
- Save for your future. Consider investing in a 401K saving plan. You can invest in a 401k or individual retirement plan tax-free until you reach the retirement age and start taking money out of the savings. Another way to avoid tax on your stock market profits in the future is having a Roth IRA, which means you pay the tax now but your income you withdraw in the future is not taxable.
- Got a student in the house? Why not take advantage on the taxation with a student special? If you have a child going to school, you can avoid tax on your stock market profits by using them as your child’s tuition in the future. The Qualified Tuition Program (QTP), or 529 plans, is one of the best ways to avoid taxes while investing in the stock market. Every state, including District of Columbia, has a 529 program.
- Reduce tax on your stock market profits. The traditional buy and hold method is not only logical in investing sense, but also in taxation. The federal government will give you a favorable tax rate for long-term stock purchase (over one year). The “holding period” starts from the day of the stock or investment purchase until the day your sell.
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