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How to make investments to reduce your taxes

Let's face it, we all have to pay taxes. There is the saying that only two things are sure, death and taxes. Taxes mean less profit because they are a cost associated with earning money. So, a major part of investing and making money doing so is choosing investments that help to reduce the amount of taxes you pay. In order to grow money, you have to reduce taxes. The question is, which investments let you reduce your tax amount on earnings?

Well, there are many that do, in fact, local, state, and federal governments encourage you to use your money in certain ways, by giving you incentives like not having to pay taxes on that money. So, for example, if you lend money to the state, by buying your state's municipal bonds, you won't have to pay federal income tax on the earnings. So, you make more because it costs you less to make that money.

The same holds true for investing in treasuries, etc. If you lend money to the federal government, you won't pay state tax or local income tax on any profits. So, while the interest rates, and returns are not as high as with some stocks, it is safer, and in many cases a more profitable way to invest.

Face the facts, if you reinvest earnings, you make more money. So, if you can reinvest all of your earnings, or in other words, not pay taxes on your earnings, you will make even more money.

So, the following are the ways to make investments to reduce taxes:

Invest in treasuries: these are the safest bond type you can invest in. They are lower interest rate pay outs, but they are also free from state and local income tax. So, you save yourself a lot of money by not paying 7% or more of your earnings as tax.

Invest in government bonds: there can vary between high quality and low quality bonds, but depending on the bond you choose, it may be free from state and local taxes. You will want to look into it and determine what taxes you will be free from when you invest in government bonds.

Invest in municipal bonds: if you are looking for a way to pay almost no tax on earnings, municipal bonds are the way to go. Many are both free from federal, state, and local income taxes. You will want to look into the different bonds you are considering and see which are the better investment based on which ones you pay reduced or no tax on the earnings.

When investing, if you are looking to reduce the taxes you pay on your earnings, you will not want to invest in corporate bonds, or in stocks, as most of these are taxed heavily. But bonds, including treasuries, municipal, and government will help reduce taxes.

Another benefit of investing in bonds is that you can sell a bond at any time and take a profit or a loss, apart from any interest earned, and even if you sell before maturity, you can still keep earnings with reduced taxes, however, that depends on the bond you choose.

Talk to your investment professional and ask advice for the best way for your company to invest in order to reduce your taxes. This can result in great savings for you, and can help you to make greater profits. Higher growth is only possible if your cost is less, so be sure and investigate your options for reducing costs by investing in tax free bonds.


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