Earned Income Tax Credit | Ways to Invest and Pay No Taxes

Ways to Invest and Pay No Taxes

People usually want to pay as little taxes as they can possibly get away with. But, there are so many ways that the IRS can tax you. If you make profit with any investments, the chances are that the IRS will be able to tax you. But, there are many legal ways to invest money without being taxed by the IRS.

Because the stock market has declined considerably since the end of 2008, investors are afraid to invest in most stocks. They are trying to find ways to make some money the safest possible way. Some turn to investing tax free so that at least they can make some money without paying taxes on the gains. While most of the time, whenever you make money, you will have to pay taxes, there are a few investment strategies that will help you lower your taxes.

When looking for the best way to invest money without being obligated topay taxes, the most obvious way to do it is to invest in municipal bonds or “minis” for short. When investing in municipal bonds, some or all of the interest earned from the bonds are exempt from taxation. Some of them are exempt from all taxes such as federal taxes, state taxes as well as city taxes. Others may be exempt from federal taxes and so on.

A municipal bond may be issued by a state, a city, a territory, a municipality, and any governmental agencies. How much of the interest that is exempt depends on the issuer of the municipal bond. Nevertheless, most of them are exempt from federal taxation. Investors are interested in investing in municipal bonds because they see the benefits of not having to pay taxes, at least on the federal level. Before investing, investors should consider the municipal bond ratings to find good municipal bonds to invest.

Investing in some retirement accounts is also tax free. For instance, if you invest in a traditional IRA account, you will not pay taxes until you withdraw the money. You can buy and sell all you want in the IRA without having to worry about being taxed. The amount that you contribute to the IRA is also tax deductible and you can deduct it on your tax return. That means you immediately get some money back from the government upfront just by saving money for retirement.

US savings bonds are also something that will give you some tax free income. Although the interest rate on the government savings bonds is somewhat low, there are many qualified withdrawals that will allow you to not have to pay taxes on the amount withdrawn such as if you were to withdraw money to pay for qualified higher education expenses.

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