6 Smart Tax Moves You Should Make Now

The tax code is tens of thousands of pages long. If you’re like most Americans, you don’t have time to go over it all and extract the best benefits that apply to you.

While we can’t promise to provide you with every single benefit in the tax code, there are a few benefits that apply to almost all taxpayers. Here are 6 of them.

1. Use Accounts That Offer Tax Benefits

Uncle Sam recognizes certain types of accounts that offer you, the taxpayer, certain benefits.

One account that you can use to your advantage is a 401k account. That’s a retirement savings plan that allows you to defer taxes on contributions you make towards your retirement. If you’re self-employed, you can get a solo 401k. However, if you work for somebody else, your employer might have a Safeway 401k program or some other similar plan.

Keep in mind you can also use IRAs to contribute to your retirement on a tax-deferred basis.

2. Save for Your Kids

The federal government doesn’t just offer tax benefits to people who save for themselves, it also offers benefits to people who save for their kids.

If you want to tuck some money away for your children’s college education, you can take advantage of a 529 plan. That works very similarly to a 401k plan, except that you’re saving for college instead of saving for retirement.

3. Invest in Index Funds

You might be tempted to invest in a mutual fund with an active manager. However, it’s likely that the fund’s performance will be inline with the market overall. To that end, consider buying an index fund that just moves with the market anyway and offers lower fees.

What are the tax advantages of investing in an index fund? Funds that are actively managed tend to engage in more trades every year and those trades can increase your taxes if you have any gains to report. Index funds trade much less frequently.

4. Hang on to Those Stocks

You might think that a great way to make some money on the side is to invest in stocks. While it’s certainly true that you can make money in the stock market, you can also increase your tax obligation if you scoot in and out of stocks all the time.

When you sell stocks for a profit that you’ve held for less than a year, those proceeds are taxed at your ordinary income rate. However, when you hang on to those same stocks for more than a year and sell them for a profit, they’re taxed at a long-term capital gains rate. That’s almost certainly going to be less than your ordinary income rate.

5. Be a Giver

You’re not only going to give yourself the warm and fuzzies when you contribute to a charity that you think is doing some good, but you’re also going to get a nice tax deduction from Uncle Sam.

6. Take Those Capital Losses

We’ve already seen how you’re taxed on capital gains. However, you can also save tax money by claiming capital losses. If you took a hit in the stock market, you can deduct some of those losses (up to $3,000 or $1,500 if you’re married filing separately) from your taxes.

Sure, the tax code is long and complicated. But there are certain provisions in it that everybody should know about. Make the smart tax moves listed here and save money.