Tame Taxes in Your Taxable Account
Some hands-on strategies to minimize your tax hit.
Taxable accounts are appealing for the flexibility they offer, and they make a lot of sense for short-term savings and as a location for additional investments beyond contributions to tax-sheltered accounts. The obvious drawback, of course, is that your earnings are subject to taxes. Don't throw in the towel just yet, though. You can employ a few strategies to keep as much money in your pockets as possible.
Avoid Short-Term Gains
The simplest way to avoid losing unnecessary cash to taxes is to avoid short-term gains as much as possible. If you hold a security for a least a year before selling, your gains qualify for a reduced, long-term capital gains tax rate. Gains realized within a year of the purchase date are taxed as regular income, while the tax rate for long-term capital gains is only 15% for most investors. From 2008 until 2010, taxpayers in the bottom two income brackets do not owe any taxes on long-term capital gains.
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