Tuesday, February 28, 2023

Kavan Choksi Sheds Light on Tax-Advantaged Investments



While investing for the short or long term, where a person decides to put their money matters a lot from a tax perspective. Kavan Choksi says that having tax-advantaged investments in the portfolio can be quite effective in reducing the amount a person owes on the returns they earn. Tax-advantaged investments might include securities, but it also implies to accounts that tend to receive favorable tax treatment.

Kavan Choksi offers a general overview of tax-advantaged investments

Tax-advantaged is a pretty general term that can describe any investment account, plan or individual investment. But broadly speaking, it usually implies to any type of investment or investment product that helps investors to make use of preferential tax treatment. It includes investments that are tax-free or tax-exempt, meaning no tax is owed on profits, or it can include tax-deferred investments implying that investors may defer payment of taxes owed on gains to a future date.

The more tax-advantaged investments a person has working on their behalf, the greater share of the investment returns they are actually able to keep. Over decades of investing, high tax rates can considerably shrink the amount of wealth a person is able to enjoy. Therefore, keeping taxes on a tight rein is important for investors to see to it that their dollars are working at maximum efficiency.

Managing investment taxes especially becomes critical as an investor portfolio grows. For instance, if higher returns from an investment put a person in a higher tax bracket, it is vital that they understand what it means from the perspective of capital gains. In a similar manner, the more the investors earn, the more they are able to set funds aside in tax-deferred accounts for the purpose of minimizing current taxation.

Kavan Choksi points out that while talking about tax-advantaged investments, there are two major sides to consider: tax-advantaged accounts and individual investments. Certain investments are more tax friendly and efficient than others on an individual level. The most tax efficient investments include Exchange-traded funds (ETFs), municipal bonds and annuities. Municipal bonds are issued by the local and state governments. If one invests in such a bond, they are basically loaning money to the local or state government. As the bond matures, the investors receive their initial investment back and are also able to earn interest on the bond. The interest earned from municipal bonds is exempt from federal tax. This interest might also be exempt at a local or state level, depending on where the bond is issued.

While there are many other types of bonds to make a choice from, like corporate bonds and treasury bonds, not all of them enjoy the same tax treatment as municipal bonds. Being able to steer clear of taxes at three different levels is rare, which makes municipal bonds quite a popular choice for tax-advantaged investing.

Annuities can also be a good addition to the portfolio as a tax-deferred investment option, as it allows investments to grow tax-free until the investor starts to withdraw funds. Exchange-traded funds or ETFs are also a great option for saving money on investment taxes. These mutual funds are traded on the exchange like stocks.


Author: verified_user