Make Taxes a Year-Round Investment Priority

Make Taxes a Year-Round Investment Priority


You may only think about taxes1 during the spring, but keeping them in mind throughout the year could be the key to reducing your tax liability. Consider these tax issues when planning investment strategies.

Think long-term when investing

Profits on investments sold after being held for less than a year – known as short-term capital gains – are subject to federal income tax rates as high as 39.6%. Profits on assets held for at least one year are long-term capital gains, which are usually taxed at a maximum of 15% (unless you make over $400,000 as a single filer or $450,000 as a married couple filing jointly, in which case the rate is 20%). Investment income may also be subject to a 3.8% Medicare tax.

Defer taxes when possible

Consider contributing the maximum amount to an employer-sponsored retirement plan or a traditional IRA. Any earnings will potentially compound on a tax-deferred basis. That is, you’ll pay no taxes on earnings until you begin making withdrawals, typically during your retirement when you may be in a lower tax bracket.*

Eliminate taxes

Investing in municipal bonds or opening Roth IRAs may be good options for some tax-averse investors. Income from municipal bonds and bond funds may be exempt from federal, and in some cases, state and local taxes.** Although money contributed to a Roth IRA is not tax deductible, you may not pay taxes on the contributions and earnings when you withdraw them if you meet certain qualifications2.

Make losses work for you

Capital losses that exceed your capital gains may be deducted from your taxes, up to $3,000. Remaining losses can be carried over to offset gains the next year.

Keep careful records

Organize your tax records now and update them throughout the year. This is especially important when claiming deductions on your tax returns. Most transaction records should be kept for three years, although some information – such as major home improvement records – should be kept longer.

Tax rules can be complex. To learn how your investment decisions can impact your tax liability, contact a Fifth Third Bank financial advisor.

The information contained herein is for information purposes only, is not designed to address your financial situation or particular needs and does not constitute the rendering of tax or legal advice. You should consult with your tax advisor or attorney for advice pertinent to your personal situation. Asset Allocation, Alternative Investment and Hedging/Diversification strategies are intended to mitigate the overall risk within your portfolio. Some strategies may be subject to a higher degree of market risk than others. An investor should understand the costs, cash flows and risks inherent in a strategy prior to making any investment decision. There are no guarantees that any strategy presented will perform as intended. Fifth Third Private Bank is a division of Fifth Third Bank offering banking, investment and insurance products and services. Fifth Third Bancorp provides access to investments and investment services through various subsidiaries, including Fifth Third Securities. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a registered broker-dealer and registered investment advisor. Registration does not imply a certain level of skill or training.

Fifth Third Private Bank is here to help: