6 Ways To Pay Less Taxes On Your Investments (Legally)
These notes were generated by AI and may contain inaccuracies.
Taxes are one of the biggest invisible drags on investment income. Today, breaking down six tax-advantaged income strategies to keep more of what you earn and build investment income more efficiently.
The less you lose to taxes, the more you keep compounding year after year.
Instead of paying Uncle Sam 30% of your income, pay only 10% or even zero in some cases. That money keeps working for you long term.
For high-income investors, municipal bonds (munis) are like a cheat code for income. Interest is exempt from federal income tax and sometimes state tax if you live in the same state as the issuer. Yields are lower than taxable bonds, but after-tax return is often higher because no federal tax cut.
Example: 10-year tax-exempt muni bond yielding 2.63% (green bar). Compare to 10-year taxable US Treasury yielding 4.34% (yellow bar):
- In 24% tax bracket: Treasury better (3.30% after tax vs. 2.63%).
- 32% bracket: Closer.
- 38.8% bracket: Almost identical.
- 40.8% + 3.8% NIIT (44.6% total): Muni better.
Fidelity calculator for tax-equivalent yield: Compare CD at 4% yield, $100,000 income, married filing jointly, Ohio with 2% local tax.
- In-state muni needs 3.3% to match.
- Out-of-state muni needs 3.46% to match. Useful for apples-to-apples after-tax comparisons.
US Treasuries are federally taxed but exempt from state and local tax—big difference in high-tax states. Super liquid and safe (risk-free rate backed by US government).
Types: Treasury bills (T-bills, 4-52 weeks), cash management bills (CMBs), notes, bonds, TIPS, FRNs.
Buy through brokerage (Schwab, Fidelity) or treasurydirect.gov (auction results show current rates, e.g., 4-week T-bill: 3.655% investment rate equivalent, matures Feb 17 from Jan 20 issuance).
Longer duration often higher yield: 10-year note at 4%.
ETF example: SGOV (iShares 0-3 Month Treasury Bond ETF by BlackRock), 12-month trailing yield 4.09%, 30-day yield 3.63%. Better than high-yield savings at 3.6% after state/local taxes, especially in state with income tax.
Qualified dividends taxed at long-term capital gains rates (0%, 15%, or 20%) vs. ordinary income rates (10-37%) for non-qualified.
Rules: Paid by US corporation or qualified foreign corporation; investor holds stock >60 days during 121-day period beginning 60 days before ex-dividend date.
Example: SCHD ETF (expense ratio 0.06%), pays qualified dividends, typically raises dividends above inflation. Good for cash-generating machine, especially older dividend investors.
2026 rates (married filing jointly):
- Under $99,000-$613,000: 15%.
- Under $99,000: 0%.
- Over $613,000: 20%.
Single: 0-50k: 0%; 50k-545k: 15%; over: 20%.
US Gold Mining Inc. (USGO on NASDAQ), owns Whistler gold-copper project in South Central Alaska (close to Anchorage). Infrastructure and politics favorable: Trump executive orders for domestic minerals; visits from Alaska governor and US lawmakers.
Resources: 294 million tons at 0.68 g/t gold equivalent (indicated: 6.48 million oz gold eq.); 198 million tons at 0.65 g/t (inferred: 4.16 million oz gold eq.). Includes copper, silver (critical minerals).
78% owned by one shareholder + insiders. Kicked off preliminary economic assessment amid record gold/copper highs. Do your own research, read filings.
SMAs are individually tailored portfolios for customized tax moves: tax-loss harvesting, timing gains, strategic bond ownership.
Key: Own underlying shares, not fund shares, so manager customizes per account (vs. mutual funds applying same to all).
Ideal for complex situations: high income, business owner, real estate, multiple children from different marriages.
Sell losers in taxable account to offset gains or up to $3,000 ordinary income/year. Avoid wash-sale rule.
Example:
- Investment 1: Bought 100 shares @ $10 ($1,000), now $15 ($1,500), $500 gain.
- Investment 2: Bought 100 shares @ $10 ($1,000), now $5 ($500), $500 loss.
Sell both: Offset gain with loss, tax bill $0 on Investment 1. Buy similar but different investment for $500 to stay invested.
Wash-sale rule: Buy same/substantially identical security within 30 days before/after sale → loss disallowed, added to new cost basis (defers benefit).
Place tax-inefficient assets (bonds, REITs) in tax-deferred/advantaged accounts (401k, IRA, Roth IRA); keep tax-efficient stocks in taxable accounts.
REITs: Distributions taxed as ordinary income (up to 37%). Better in Roth (grows tax-free until 59.5).
6B: Tax-advantaged annuities (higher earners/older). Hypothetical: $100k @ 6% return over 20 years.
- Taxable account: $222k.
- Tax-deferred variable annuity (pre-tax, 25bp annual fee): Invest $95,117 → $305k.
- Post-tax lump sum withdrawal: Invest $95k → $239k. Beats taxable in both.
Taxes shouldn't drive entire strategy—consider goals, timeline, age, risk tolerance first. Then use these: munis, qualified dividends, tax-loss harvesting, asset allocation (e.g., REITs in 401k/Roth).
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