There are a million tax loopholes. As people get further into their investment careers, they learn more ways to save. For those just getting their start, the methods are fewer and farther between. This should stand to reason, after all. Without a lot of money, our financial lives simply aren’t that complicated. It’s difficult to find loopholes in an uncomplicated system. But there are two easy ways for a beginning investor to save on taxes. And you can do both of them at the same time.
Tax Savings Plan #1 – Spread Betting
Spread betting was created in the United States, but most people do it through European websites. In this investment form, a user makes an account and picks out a stock market, commodity, individual stock, or other financial entity. Because of the fluctuations implicit in stock behavior, no one is ever really sure whether an individual stock is going to jump or dive, moment to moment. This is the behavior that spread betting is based upon. A user will make a wager than a stock or market will increase or decrease in value, over a set amount of time. If, at the end of the time period, the stock has in fact risen or fallen, according to the user’s wager, the user wins. The specific amount of money depends on how much beyond a certain threshhold the financial entity rose or fell.
Because these wagers are made so quickly and in such great quantities, it is very difficult for governments to track them accurately and meaningfully. What is more, even if a government decided to tax investor winnings as capital gains, they would have to provide tax breaks for their losses as well. Because losses outnumbers wins by a fair margin, this would result in negative tax revenue. And it is for this reason that the USA has outlawed the practice, and the UK allows it for the passive increase to their economy. Get good at spread betting and you stand to make a lot of money quickly, tax free.
Tax Savings Plan #2 – Individual Retirement Accounts
An individual retirement account (IRA) is a way to save tax-protected money for retirement. You have to pay taxes on the money one way or another, but you’re given a big advantage. If you decide to pay taxes on your contributions as you make them (as in a Roth IRA), you don’t have to pay taxes on the money when you go to take it out. This is the kind of IRA I have, because I know the money will grow a lot between now and the time I take it out, giving me a huge tax free bonus later on. Others pick the Traditional IRA, where funds are taxed upon withdrawal. This is good for people who need to save on taxes now and will be able to afford the taxes later, because the funds saved will more than cover them.
These are the easiest ways for a new investor to save on taxes. They are very different, but a smart investor will learn to accept varying amounts of both kinds of risk. Get the balance right, and you’ll have plenty of money for retirement, and before.