5 tax breaks that benefit wealthy investors

Jeb Bush Defends Tax Breaks for Wealthy

Investing in securities can yield big returns but adding on to your wealth can potentially drive up your tax bill too. Cashing in on as many tax breaks and tax deductions as possible can minimize the financial hit. There are a number of tax loopholes that benefit wealthy investors, so if you happen to fall into that category, here are some examples that can help you save big.

Check out our investment calculator.

1. Capital Gains Tax

Capital gains tax is assessed when you sell off investments for a profit. The long-term capital gains tax rate, which applies when you hold investments for over a year, can be 0%, 15% or 20% depending on which tax bracket you fall into. For a wealthy investor who makes most or all of their money playing the market versus drawing a paycheck, that's a much more favorable rate than the ordinary income tax rate, which tops out at 39.6%. That's a reason to hold on to your assets before you sell them off again.

2. Capital Losses Deduction

If some of your investments tanked over the past year, you can use the loss to offset any gains you've made. For 2015, the amount of capital losses you can claim on your taxes is capped at $3,000 for singles. But if you have losses to report over that amount, you can carry them over in future tax years.

3. Mortgage Interest Deduction

Wealthy investors who are still paying down a mortgage on their home can enjoy a major tax write-off if they itemize. The more expensive the property is, the bigger the deduction that reduces your taxable income for the year. As of 2015, homeowners could deduct all of their mortgage interest on up to $1 million. This deduction can also be applied to the interest on a second home.

If you own a rental property as an investment, you won't be able to deduct your mortgage interest, but there are other expenses you can write off. Some of the things that you can include as deductions to offset your rental income include the cost of repairs, maintenance, depreciation and any operating expenses you incur.

Check out our mortgage calculator.

4. Investment Expense Deduction

Investment fees can easily run into the thousands each year, but wealthy investors don't have to take it as a complete loss. The tax code allows you to deduct any investment expenses that exceed 2% of your adjusted gross income. So for example, if you make $100,000 a year, you'd be able to deduct any investment-related costs over $2,000.

Some of the expenses that you can write off include financial advisory fees, IRA custodial fees paid in cash, financial management software or online services, charges for automatic investment services and transportation costs that accumulate from travelling back and forth to your investment advisor's office.

Related Article: 5 Investment Challenges Even Wealthy Savers Face

5. Appreciated Stock Donation Deduction

If you've invested in a stock whose value has increased substantially since you initially purchased it, you can avoid getting hit with a big tax bill by donating it to charity. The IRS lets you deduct the full market value of long-term appreciated stock donations made to qualifying charitable organizations.

Since you're donating the stock instead of selling it, you don't have to worry about owing any capital gains tax on the earnings. You effectively get a double benefit by taking the deduction to reduce your taxable income and sidestepping the capital gains tax.

The Bottom Line

There are quite a few tax breaks that wealthy investors can't afford to miss. If you're new to investing but your long-term goal is to build some serious wealth, socking away as much money as you can in tax-advantaged accounts is a good place to start. From there, you can start reaping the tax rewards as your investments grow.

Photo credit: ©iStock.com/Predrag Vuckovic, ©iStock.com/Fertnig, ©iStock.com/woraput

The post 5 Tax Breaks That Benefit Wealthy Investors appeared first on SmartAsset Blog.


More from SmartAsset.com
5 Investment Challenges Even Wealthy Savers Face
3 Ways Parents Can Invest for Their Kids
What Is a Cap Rate?

Should I Include a Dependent's Income on My Tax Return?

It may be easier and less expensive to include dependents' income on your tax return rather than have them file their own return—in certain circumstances.

Read More

Brought to you by TurboTax.com

Great Ways to Get Charitable Tax Deductions

Generally, when you give money to a charity, you can use the amount of that donation as an itemized deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.

Read More

Brought to you by TurboTax.com

Tax Tips After January 1, 2019

TurboTax gives you ten tax saving tips for the new year. Find strategies to lower taxes, save money when preparing your tax return, and avoid tax penalties.

Read More

Brought to you by TurboTax.com

Should You and Your Spouse File Taxes Jointly or Separately?

Married couples have the option to file jointly or separately on their federal income tax returns. The IRS strongly encourages most couples to file joint tax returns by extending several tax breaks to those who file together. In the vast majority of cases, it's best for married couples to file jointly, but there may be a few instances when it's better to submit separate returns.

Read More

Brought to you by TurboTax.com
Read Full Story