When it comes to investing, most investors are trying to earn more and pay less tax.
The reality is that there are limited ways to legally eliminate your tax bill altogether in our current system. But there are a few strategies that you can use to pay less tax and get more from your ASX shares in 2020.
Why should I care about paying less tax?
While you might not think about tax on your investments, you absolutely should. When you evaluate a portfolio on pre and post-tax returns, your ideal portfolio could be very different. For instance, investment debt could be tax-deductible and therefore be better for you depending on your income levels.
Introducing tax into the equation will also lower the volatility of your expected return. ASX shares like Afterpay Ltd (ASX: APT) might have netted you a 100% gain in 6 months. But capital gains could eat away at that unless you have a way to pay less tax.
So, with taxes in mind, let’s take a look at how to boost your returns in 2020.
Invest in your superannuation
Some investors are wary of superannuation because it can seem complicated. The other issue is that your money is locked away for a long time and exposes you to both liquidity and regulatory risk.
However, investing in super is one of the easiest ways to boost your after-tax returns. Concessional super contributions are taxed at just 15% up to $25,000 per year. If you’re in a high income bracket, the value of pre-tax super can be enormous. You can lower your taxable income, pay less tax and generate the same strong returns.
Tax loss harvesting
Tax loss harvesting is a process where you use your losers to offset your winners. For instance, you may have a capital gain on Appen Ltd (ASX: APX) but a loss on Nearmap Ltd (ASX: NEA). You can sell both of your ASX shares, but the capital loss on Nearmap will offset the gain on Appen for a lower taxable amount.
This means you will pay less tax on your investment, and can then buy back Nearmap shares if you still want to hold them long-term.
It’s important to consider the impact that taxes can have on your investments. If you want to buy and hold ASX shares long-term and still pay less tax, these are just a couple of basic strategies to use to your advantage.
The post How to pay less tax and boost your ASX returns appeared first on Motley Fool Australia.
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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Nearmap Ltd. The Motley Fool Australia owns shares of AFTERPAY T FPO and Appen Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020