It’s never too early to begin thinking about tax season, especially for investors.  However, many investors find that tax season is the furthest thing from their minds until it’s too late to make much of a difference.  Last year, Jim Crimmins wrote an article (http://community.tradeking.com/members/tk-all-star/blogs/15924-resolved-smarter-on-taxes-when-trading) about ringing in the New Year with just a few simple steps.  Let’s take a look at renewing those resolutions and making a few new ones.

1)   Use Maxit—it’s easy. An indispensible tool is available to you, dear investor, that will keep your spirits bright long after the holiday season is through.  Under the Accounts section on your TradeKing brokerage account, you will find a subsection titled “Maxit Tax Manager.”  Click it, and open yourself up to a world of possibilities!  Maxit will automatically update and notify you of tax smart investment opportunities that will benefit you all year around.  It renders tax reports on demand.  It provides real-time analysis and simplified tax reporting.  Maxit is the full package.  You can choose and customize your own tax accounting method, or you can let Maxit decide for you using MinTax, the feature of Maxit that determines the best tax accounting method for each transaction.  Log in as often or as infrequently as you want, but let Maxit do the busywork.  Your resolution to prepare for tax season with Maxit will pay off in huge dividends (more on those in a moment) when you realize come April the time and money you’ve saved.

2)   Set up a business.  This tip from last year’s resolutions remains as important as ever, yet few investors decide to take the bull by the horns on it.  For the first $25,000 of retained profits you’ll make, due to the tax rate, you will only owe 22%.  Medical expenses, even if you have no employees, can be covered on a reimbursement plan.  In fact, working on your own might be the best route to take, allowing you to save money on Social Security taxes and other expenses. Just make sure, if you decide to set up your own company, that you do so with a qualified advisor.

3)   Tax-deferred programs are your friend.  When you defer taxes on your trades, you will only owe those taxes when your investment is sold, and then your taxes fall within your income bracket.  Contributions to your IRA or SEP are obviously a tax deferred investment in and of themselves, but you should consider making purchases through your tax deferred account and only withdrawing after you retire.  Plus, all the taxes you’ll save will allow you to invest more.

4)   Don’t overlook dividends.  Dividends that are reinvested will reduce your taxable income by increasing your investment in a fund.  Unfortunately, many individuals forget about their dividends, ultimately paying more on taxes than what they ought.  While you might think there’s no need to rush—in the short term, of course, dividends usually make little difference—a long term investment with dividends that have gone unaccounted for will miss out on the compounded growth allowed by tax savings.  Keep track of your dividends (another reason to use Maxit, of course) to maximize your investment, and don’t foolishly think that it makes little difference one way or the other.  At some point, it will!

5)   Watch out for those capital gains taxes.  When you hold a stock for twelve months or more, the government considers your position to be long-term.  Anything less is considered short-term.  The problem with selling your investments in the short term is that you will end up being slammed with additional taxes come tax day.  The tax amount you’ll end up paying is anything but inconsequential: while you’ll only have to pay up to 15% on long-term investments, you could end up paying twice as much or more on short-term ones.