© F I N O M I S T ™, One who has great interest in Finance and Economics!!

In the world of Investment, you are bound to face two devils, Inflation and Tax!! You can run but you can't hide from these two. If you are careful, the ammunition you carry can minimize the intensity of these two but you can't eliminate them completely. In this blog I'll talk about TAX and in next I'll be dealing with Inflation.

Government likes to tax you all the time, When you Earn money, they TAX you, when you want to SPEND it, they'll TAX you and when you INVEST they TAX . There is no way you can escape them(and still they have budget deficit(wonder why? ;-)), but Like I said earlier you can minimize the damage though.

1. Holding your investment for more than 1 year : If you retain your investment for more than 1 year, you fall in different Tax bracket (Max 15%), else you are taxed at ordinary rate (Max 35%). Hence it makes sense to hold on to your Investment, even though it jumped more than 20% in less than a year. [also don't forget to DEDUCT 3% from your GAIN due to Inflation (yeah.. yeah ..another Devil)].

2.Investing in Municipal/Treasury Bonds: In case of Municipal Bonds(Munis) you are exempt from State(if you stay in the same state) as well as Federal taxes, and in case of Treasury bonds you are exempt from Federal tax. For an example if you are getting around 5% in these bonds which is equivalent to 7% (approx.) on other taxable investment. [divide the gain in municipal by (1-%your tax bracket)] (with 7% you can double your investment in ~10 years than with 5% in ~14 years).

3. 401(K) and IRA(ROTH/Traditional): I am spending less time on these investment tools, as I assume the reader knows that, investment on these funds grows TAX FREE, and the investment comes from PRE-TAX amount(also it is Tax deductible). [please consult with your accountant to know how much you can save by investing :-)]

Please share if you know more Tax saving Tips!