6 Things Stock Investors Should Remember at Tax Time
Posted on February 27, 2017 by Andy Hayes

Tax day falls in mid April every year, without fail.  It’s always a good time to be thinking about what your tax liability is, and how you can reduce it – you don’t want to be waiting in line with all the other investors rush to their CPA for advice. Here are some reminders to help you plan year-round to save money when it comes to stock investments and your taxes.

Important:  Please discuss any changes with your CPA or tax attorney before making investment decisions.


Some investors pay a heavy tax on dividends due to lack of knowledge on tax. When you receive dividends and you decide to reinvest the dividends, this increases you investment in the fund. Reinvested dividend amount can be used for tax exemptions.

For example you invested $5000 in a fund and you get $500 as dividend, which you decide to invest in the fund. You then sell your holdings for $6500. Your actual gain is $1500. But your taxable gain is only $1,000 i.e. $6500 minus $5000 your initial investment and a further $500 you reinvested which comes to $1000.

Harvest your tax losses

Investors need to continuously monitor paper gains and losses. If there are significant losses and you think that the stock might not be a good investment (and no opportunity for a long-term rebound) then you can sell the stock and book actual losses. This loss can offset gains from other investments. Another advantage is that you use the proceeds to make further investments.   This is called tax loss harvesting.

For example: You purchased a stock for $10,000 and after six months the value has fallen to $6,000. If you decide to sell the stock then you book $4,000 as a short term loss as the holding period is less than one year. Assuming a 35 percent federal income tax rate your tax savings will be $1,400.

Consider investing in tax free bonds

If you’re looking for opportunities to diversify the types of holdings in your portfolio, this is reminder to consider tax free bonds as the interest received is tax free. The interest might be slightly less compared to other instruments, but  when you calculate the returns without tax, it could end up being more beneficial. Although they have pros and cons, municipal bonds have become a more popular instrument with investors as of late – and if there are local bond opportunities, it’s a way to put your investments into your local community.

Consider investing for long term

As you may know, tax rates are higher for short term trades as opposed to long term investments.  The government wants you to hold on to your investment and incentives you for it (or penalizes you for short term changes, to look at it another way).   In general, it is always better to plan your investments for a long term outlook as opposed to a short term out look – in addition to a lower capital gains tax rate, you also save from administrative cost of the more frequent trades.

Contribute to you tax savings accounts

Don’t forget to make sure you’re putting funds into your retirement accounts – IRA and 401k accounts.   Investments in traditional IRAs are tax deductible (i.e. the investments are made before your income tax is calculated).  Roth IRAs are not tax deductible but your long-term earnings are tax free.   Each has an annual contribution limit (depending on your age, it’s anywhere between $5,500 and $6,500 at the moment).  Take advantage of these vehicles for tax savings. If you have access to a 401k, this is also a pre-tax income investment.  But even more useful is if your employer makes a matching investment.  While there are mixed opinions about whether you should take the match or not, be sure to consider this if it’s an option available to you.

Donate stock instead of money to charity

If you are looking to make any charitable donations (either to support your favorite causes, or to obtain the tax writeoff – or perhaps both!), did you know you can make your donation in stock instead of money?  This helps you avoid paying the capital gains tax on the increase in value from the time you purchased the stock.

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Written by Andy Hayes

is a lifestyle expert and runs his own online magazine, Plum Deluxe. Andy is based in Portland, Oregon.

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