Every business should keep their books updated on a regular basis. However, many business owners do not have enough time to actually keep their books current. Instead, they wait until the end of the year to pull their records together to give to their tax accountant. This is a mistake. It is essential that businesses update their books at least monthly. There are several reasons for keeping the company books updated throughout the year.
Whether you’re new to mutual funds or a seasoned investor who wants to learn more, these tips will help you avoid the tax bite on mutual fund investments.
First, you need to understand how distributions from mutual funds are taxed.
Tax law generally treats mutual fund shareholders as if they directly owned a proportionate share of the fund’s portfolio of securities and you must report as income any mutual fund distributions, whether or not they are reinvested. Thus, all dividends and interest from securities in the portfolio, as well as any capital gains from the sales of securities, are taxed to the shareholders.
As an active trader, you quite rightly want to reduce the amount of tax you owe on your profits to the legal minimum. At first thought, you might consider trading from a traditional or Roth IRA to shelter your profits. In a traditional IRA, your contributions are tax-deductible and you don’t have to pay taxes until you withdraw the money. You can’t deduct Roth IRA contributions but you can withdraw your money tax-free if you follow the rules. Obviously, your record keeping for tax reporting is greatly simplified using an IRA, since you don’t declare profits and losses. However, further investigation reveals that a 401K is a much better vehicle to tax shelter your trading profits. Here’s why.