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Five Great Tax Tips Every Investor Should Know

Making investments is a great way to both plan for your future and build your personal wealth now. With the right stock management, investments have allowed many people to quit their day jobs and follow their dreams. But one thing that scares some potential investors away is the complexity of tax laws surrounding investments and the fear of getting smacked in the face with mega-bill from Uncle Sam when tax time rolls around. Well, fear not. Give these five savvy tax tricks a try to help you get the most out of your investments by giving the IRS the least you possibly can.

Tax investment tip number one is to invest in municipal bonds. Municipal bonds are your way of investing in the government and improving their cash flow, so you are rewarded by not having to pay taxes on any profits you receive from municipals bonds on your local, state, or federal taxes. Unlike most investments opportunities, this municipal bond tax break is holds true for any amount of income received from the bonds, and it is good for people in any tax brackets. Likewise, while municipal bonds may not burn up the stock market like some other big money stocks, you have a stable, slow growing, long-term investment you can count on.

Tax tip number two shares a lot in common with tax tip number one, in that the tax free benefits are a way to say thanks for investing in the government - buy US Savings Bonds. There are a few more restrictions here than with municipal bonds, but as long as the bonds are in your name, you are single or filing separately, or you use the bonds towards you college education/college loan, your bond profit is 100% tax free.

For tip number three, consider investing in a Roth IRA. While it's true you won't be able to access the money you put into the IRS for one year, after that, all withdraws by you and all the interest accrued is tax-free. Think of it as a high interest, tax-free savings account, which has the added benefit of helping you maximize your retirement savings.

Tax tip number four is, overset your investment income taxes by making a donation of stocks to a charity of your choice. You can deduct the cost of any stocks you gift to a charity at the price at which you purchased them, if you have held the stocks for less than a year. Save even more money by gifting stocks you have held for more than a year; with these stocks, you can deduct the appreciated, fair market value of the stock at the time of the transfer.

The fifth tax tip sounds a little obvious, but bears repeating: dumb the losers. If tax time is rolling around, and you are losing money on some stocks, don't try to ride it out. Dump the stocks and deduct your loses from your taxes as a capital loss. If you've made income through some of your other investments, this tip works especially well to offset some of those taxes.

Of course, if you have made a significant amount of money through your investments this year, the fact is, you're going to have to pay at least some taxes on it. Plan for it, and look for deductions well ahead of time. Make a few charitable donations, take advantage of the Energy Credit Tax Act, or do anything else to bring your tax bill down. A financial advisor can help you identify tax breaks that are available to you.