by Gene Walden

Taxes are an inevitable part of life. But there are ways to minimize the taxes you pay on your savings and investment gains. And every dollar you save in taxes puts an extra dollar in your pocket.

That’s why it’s important to consider the tax implications of every investment you make and to take advantage of the tax savings opportunities offered by the federal government.

The most obvious tax-savings measure for working Americans is to contribute the maximum possible amount to your IRA or company 401k plans each year. Money contributed to traditional IRAs and qualified retirement plans is deducted from your current year’s taxable income. The investments in those qualified retirement plans grow tax-free until you withdraw your funds during retirement. They are taxed as your current income tax bracket. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty.

If possible, you should also open a Roth IRA. Although the money you contribute to a Roth is not tax-deductible in the current year, your investments grow tax-deferred within the account. And your withdrawals from a Roth after you retire would also be tax-free. Roth IRA owners must be 59 ½ or older and have held the IRA for 5 years before tax-free withdrawals are permitted.

If you’re saving money for your children’s college education, you can save additional taxes by opening a 529 college savings plan. Your investments within a 529 plan grow tax-deferred and withdrawals used for college costs are also tax-free.

You might also consider setting up a medical savings plan. Medical savings plans allow you to contribute pre-tax dollars to the account to cover future medical costs.

But tax-advantaged savings and investment plans are not the only way to save taxes on your investments. You can also save taxes by claiming certain deductions regarding your investment expenses.

For instance, you can claim depreciation on a home computer used for investment activities. You can also claim fees for online trading, investment club operating expenses, investment fees, custodial fees, trust administration fees, IRA fees billed and paid separately from your IRA contribution, and other expenses you pay to maintain your investments.

You can also deduct the cost of subscriptions to investment magazines and newsletters. And you can deduct safe-deposit box rental fees if you use the box to store stocks, bonds or other investment documents.

The types of investments you make can also have tax implications. If you put your money into an interest-bearing savings account, a certificate of deposit or a corporate bond, the interest you receive will be taxable. But interest from municipal bonds is exempt from federal taxes and is often exempt from state taxes, as well.

Dividends you receive from most stocks are taxable, but under current tax law, dividends are not taxed as ordinary income but rather as capital gains, which would be a lower rate than ordinary income.

Gains on individual stocks are also taxed when you sell the stock, but if you hold the stock for at least 12 months before you sell, you would be taxed at the lower capital gains rate. If your stocks lose money, you can claim that loss to help reduce your taxes. Many investors try to sell some of their winners along with some losers to minimize the tax implications. If your losses were the same as your gains, taxes owed on the winners would be canceled out by tax write offs from the losers.

Talk with your financial advisor to be sure your investment plan is as tax-efficient as possible.

This is not intended to be tax advice for any individual. Please seek the advice of your tax professional.