Investing is an effective method that many people use to grow their money and successfully reach their retirement planning and other monetary goals. However, without the assistance of a professional financial advisor, it can be particularly challenging to understand how investments are supposed to be factored in at tax time. That’s why the experts at Weaver Insurance & Financial Advisors provide Waynesboro, VA, residents with some basic information that helps explain how taxes are impacted when investments are involved.
Below, the financial advisors go over a few things every investor should know before doing their taxes:
- Sold Investments: Any time investments are sold for more than their value at the time of purchase this is considered to be a capital gain. The actual amount that is made must be reported on taxes, and the investor will have to pay on this profit. When an investment is sold for less than what was paid for it, this is a capital loss, and it can be used to decrease the taxes owed on capital gains as long as it’s reported.
- Dividends & Bonds: Dividends have the potential to reduce your capital gain or increase your capital loss if they were reinvested into a fund for additional shares. The alternative is to keep dividends earned and pay taxes on them. If an investment is made into bonds, interest income must be reported on taxes, but it may not be required to pay on the entire amount of interest accrued.
- Tax-Advantaged Accounts: There are several different types of accounts that allow investors to grow their retirement fund without being taxed until the money is pulled out. As an added advantage, some of them also offer a tax break. Tax-advantaged investments include, IRAs and Roth IRAs, 401(k)s, 529 college savings plans, and Health Savings Accounts. Each of these will fall into the tax-deferred or tax-free category.
Financial advisors emphasize that efficient tax management plays just as important a role in an individual’s financial plan as their investments do. To get the most for their money, investors should take the time to learn how to minimize taxes while capitalizing on investment opportunities. Contact Weaver Insurance & Financial Advisors at (540) 943-1221, or visit the company’s website for additional information on their financial planning and investment services.