Many investors focus on picking the right stocks, funds or digital currencies but overlook tax mistakes that quietly eat into their returns every year. And if you don’t know how to leverage the rules already built into the tax code, you’ll likely miss out.
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GOBankingRates spoke to tax experts to reveal tax filing mistakes that can cost investors $3,000 or more each year. Here’s what they said.
Treating Taxes as a Once-a-Year Event
If you’re like many people, taxes only come to mind during filing season. But by then, you’ll have missed out on many opportunities that could reduce your tax bill.
“The biggest filing mistake I see is treating taxes as a once-a-year chore instead of a year-long process,” said Christina Taylor, vice president of tax development and delivery at April. “When people only think about their return in February or April, they miss credits and optimizations they’re actually eligible for.”
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Missing Tax-Loss Harvesting Opportunities
Tax-loss harvesting allows you to sell underperforming investments in taxable accounts at a loss to offset gains or reduce taxable income. If losses are more than the gains, you can use up to $3,000 annually to offset ordinary income and carry forward the rest to future years.
“Failure to realize losses during down markets inhibits capabilities to offset gains or reduce ordinary income up to $3,000 a year,” said David Kang, taxation advisor and founder at Keeper Tax. “Too often, investors hold losers for too long and lose the potential tax benefits.”
Timing matters because markets don’t stay down forever. As Kang concluded, “When to pull the trigger matters for the final tax bill as well as investment performance.”
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This article originally appeared on GOBankingRates.com: The Tax Filing Mistake That Can Cost Investors an Extra $3,000 a Year
