1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Intelligent Speculator
Intelligent Speculator

Basic Rules to Lower Your Tax in Investing

April 05, 2012 | About:

It seems a bit crazy. Investors that spend hours trying to find the best possible stock to buy, that try to optimize asset allocation, find lower commission rates, trying to save a few dollars here, improve returns a bit there, looking for mutual funds or ETF’s that cost a bit less, etc. Then they pay almost no attention to optimizing payable taxes. We all do our best to ensure that our retirement and other accounts increase as fast as possible.

Taxes Are A Huge Factor

I think it’s easy to forget the huge impact of taxes on our retirement. Just think about it for a minute.. If you are able to optimize taxes that you pay in the early years, it can mean incredibly big differences decades later as you can reinvest that money over time and then pay lower taxes once you do need the money.

Why Do We Overlook Taxes?

It beats me honestly. I wish I could say that I’m doing everything that I should but I’m not. I have gotten much better over the last few years but there is still a lot to be done. I think there are a few reasons why most of us spend too little time worrying about the tax aspect of investing. It’s usually not very exciting, takes a decent amount of time and isn’t simple by any means…

Unfortunately, It’s Complex

Why is it so complicated? I think the main reason is that there are no fixed rules for diminishing taxes. It depends on each individual investor, what accounts they hold, what their financial situation and objectives are, etc. There are two main types of accounts:

-Tax Deferred Registered accounts

-Taxable cash/margin accounts


[b]There are 2 main taxes on investments:

-Capital gains taxes

-Income tax

Some Basic Rules

-In general, you would like to have as many taxable investments being made in a tax deferred account, such as a RRSP or a 401K. Ideally, any dividends, capital gains or other events would occur in those accounts.

-Depending on your situation, asset allocation can sometimes be modified for tax reasons. For example, holding more income (bonds, dividends, etc) securities in tax deferred assets can make a lot of sense. For an investor that is holding retirement assets in both types of accounts, holding all assets that will generate payable taxes in a tax deferred account could make sense for example.

-While you would not sell or hold a security strictly for capital gains taxes purposes, it should certainly be part of the equation as it can have a significant impact. Plan on taking a year off to travel around the world? That would be a great time to sell those stocks that you made a killing on.

-Special securities: Some specific investments such as life insurance investments, municipal bonds or others can have very unique tax impacts and could certainly be appropriate for some investors.

So now tell me, what are YOU doing to optimize your taxes?

Rating: 2.0/5 (7 votes)


BEL-AIR - 5 years ago    Report SPAM
As a Canadian This is what I gonna do, leave the west were taxes are high and the countries are about to go broke due to over spending.

Go to a country that charges no taxes on capital gains, pick a country there is hundreds of them.

Hong Kong, Bermuda, British Virgin Islands, Singapore, Philippines, Panama, Saudi Arabia, United Arab Emirates Costa Rica etc etc etc...

Then you can say goodbye to the tax man and not have to worry about taxes in investing again...

Templeton did it in 1964...


"Templeton renounced his U.S. citizenship in 1964, thus avoiding U.S. over $100 million in income taxes when he sold his international investment fund.[12][13] He had dual naturalized Bahamian and British citizenship and lived in the Bahamas."

Templeton actually said that his results and gains actually went up after he moved away as he could spend more time in investing and less time thinking how to minimize taxes.

Please leave your comment:

Performances of the stocks mentioned by Intelligent Speculator

User Generated Screeners

rael2222TOP TOP 3
Saab HoldingsSaab other
ky_chuiProfile 1
mjspencermmm screen
browntroutFwd PE <=9, Gross Margin >= 25
gelayor65All Stocks With Blackrock Heav
jan.ellsbergerHernhag rev5
jan.ellsbergerHernhag rev4
jan.ellsbergerHernhag rev3
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat