How To Reduce Taxes On ETF Gains
etfs can be profitable investments, but ? benefit from them, you need to know the tax consequences. when etfs are sold, investors will be owed for taxes on any gains they made. however, there are a few simple tricks etf investors can use to reduce what they owe. one strategy is to close up the efts you are losing money on before their one year anniversary and keep your winning position for more than one year. the irs charges lower tax rates on long-term investment gains, allowing you to reduce what you owe on your profitable etfs. second, if you own an etf in a sector you are optimistic about but the market is suffering a downturn, you can sell the current etf for a tax loss and buy another one that has exposure to the same sector but uses a different benchmark. this way you will still be able to benefit from exposure to the sector, but you will also be able to take the loss on the original etf you held. for example, suppose that peter is losing money on two etfs on his portfolio, a healthcare etf and a materials etf. despite ? performance, peter believes these two sectors will bring in profits next year. in this case, peter might decide to sell the etfs for a loss and then purchase different etfs in the materials and healthcare sectors. this way peter will be able to deduct the loss from any gains he made on his portfolio and will still ? to profit if things turn around on those two sectors next year. minimizing tax liability is only part of a successful investment strategy but it is an important part. etf investors can boost their portfolio returns simply by understanding how their investments are taxed and using that knowledge to reduce those taxes.
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