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Investment strategy and taxes

Although investing wisely is essential to building and protecting your assets, the additional income you earn can also affect the amount you pay in taxes. To minimize this impact, you’ll have to develop a strategy that considers both cash from interest and sales, i.e. “investment gains” as well as the relevant taxes (Note: the more complex your portfolio is, the more likely you are to benefit from a qualified investment professional).

Before you begin, however, you should take a moment to review the following tactics:

Capital gains—Capital gains are profits earned from the sale of an asset such as a stock, bond, or real estate property. The taxes levied on capital gains vary depending upon how long you hold the asset prior to selling, with “short-term” taxes applying to assets held for less than a year and “long-term” apply to assets held for a year or more.

Typically, long-term taxes have a lower rate (the government does this to encourage investment), so it”s often in your best interest to carefully choose and hold onto your investments.

Tax breaks—Certain financial vehicles and retirement plans provide valuable tax advantages: tax-deferred growth allows you to accumulate cash without paying taxes on the value until you actually make a withdrawal*. In addition, qualified plans such as 401(k)s and traditional IRAs enable you to deduct the money your contribute from your income, which effectively lowers your taxable income.

Regulations—You’ll also want to review your state, local, and federal tax codes before you plan or alter your strategy; regulations can and often do vary from year to year so it’s essential to keep yourself informed. Consider arranging a call to your legal or tax advisor haven’t already.

* Withdrawals may be subject to regular income tax, and if made prior to age 59 ½, may be subject to a 10% IRS penalty

This material is for informational purposes only. Neither New York Life nor its agents provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions.


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