How To Reduce Your Investment Income Tax Obligation

If you know how to reduce your investment income tax obligations, you can use the money to enhance your retirement savings accounts. The following are a few pointers on how to reduce your tax obligations:

Your Home

Your home can provide you with long term capital gains. Property taxes and interest for mortgages are typically tax deductible. Also, if you have private mortgage insurance, it is typically tax deductible. Also, try to hold on to your home for at least for two years because you will be eligible for the ‘home sale exclusion’. The exclusion is a tax deduction of up to $250,000 of the total profit, at time of sale.

Your Income

If you have an income much higher than you have expected, you can sell some of the idle or trailing investments. Transfer all of your tax efficient investments to the taxable accounts. Then, transfer the non-efficient investments to the retirement accounts. This will substantially reduce the taxes on the interests, the dividends and the capital gains.

Also, direct all of your heavily taxed investments to your RRSP (the Registered Retirement Savings Plan) because RRSP is tax-sheltered. For example, your 401k or IRA plans.

Tax Seminars

Pay attention to tax deductions, tax rates and new government laws that concern exemptions. Be attentive to tax events that can apply to you. Attend tax seminars as regularly as possible to learn as much as you can.