A tax efficient investing can only occur when the tax paid on both capital gains and income is reduced or minimized. It also is required that value is maximized by having tax efficient investments in tax free and taxable account and lesser tax efficient investment are held in tax deferred accounts.

• Hold the stocks more than one year as then you have to pay less tax on the profits. The tax on profit for stocks held less than a year is as much as 35% whereas for the stocks of one year or more, it reduces to 15%.

• Hold tax efficient index fund, mutual funds and low turnover funds in Tax free (Roth)/taxable account. The active funds that give short term capital gains can be held in tax-deferred accounts.

• Put municipal bonds that are most tax efficient in taxable account and high yield bonds in tax deferred accounts.

This entry was posted on Friday, February 12th, 2010 at 9:00 am and is filed under Investments, Personal Tax. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.