The second way is to die. When you die, your heirs receive a “step-up in basis,” meaning that the IRS considers the value at which your heirs purchased the investments to be the value on the date of your death rather than the value when you purchased them decades earlier. This can save them so much in taxes that it is generally far better to sell investments with a higher basis (or even borrow against them) and hold on to low-basis investments until death.
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ACEP Now: Vol 35 – No 06 – June 2016Ben Franklin said, “In this world, nothing can be said to be certain except death and taxes.” Emergency physicians might not be able to prevent their own deaths, but they can certainly minimize the effects of taxes on their investments through wise investment planning and management, either on their own or in conjunction with a competent, fairly priced advisor.
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One Response to “Six Ways to Reduce Your Investment-Related Taxes”
July 20, 2016
Michael ZhuangGreat article by Dr Dahle! I just want to add one more point, the concept of tax-efficient asset location. That is where you hold your securities to minimize taxes.
Example 1, you invest in a high yield corporate bond fund and a municipal bond fund. The corporate bond fund should be held in your tax-deferred retirement account since otherwise interest incomes are taxable. The municipal bond fund can be held in your regular brokerage account, since interest incomes are tax-exempt.
Example 2, you invest in a REIT (real estate investment trust) fund. Since REITs must distribute at least 95% of rental incomes, REIT funds tend to have high dividend incomes, they should be held in your retirement account to avoid taxation.
Being tax aware in your investments can add 1% to 2% in returns. Over 20 years, you will be 20% to 40% richer. It’s a big deal! Don’t ignore it.