Stock earnings are taxed when sold at a profit. This is called capital gains tax. Compared to other investment options, stocks offer you some control in the timing of tax liability. You are not taxed on stock earnings until you sell stock. Here are some ways to minimize or delay your tax levy against your stock investment, or to take investment-related deductions that may help reduce taxes.

 1    Hold on to Your Stocks for Over One Year before Selling

If you sell your stock, and you have a gain, the gain will be taxed. Short term capital gains apply if you owned the stock for a year or less; long term capital gains apply if you owned the stock for more than a year. Short term capital gains are taxed at a higher rate than long term capital gains. If you can hold on to your stock for more than a year before selling, you’ll minimize the impact of the short term capital gains.

 2    Defer Capital Gains Tax by Buying Stocks through a Tax Deferred Account

If you are facing capital gains tax from the sale of your profitable stock, consider delaying taxation by trading through a tax deferred account, such as a traditional Individual Retirement Account (IRA), or one of the many other IRAs that might benefit you in your current situation. Taxes on stock proceeds would be delayed until withdrawal of IRA funds, usually done during retirement. Income and contribution limits may apply – consult your tax advisor.

 3    Offset Yearly Capital Gains Impact with Equivalent Losses

If you sell your stock investment during a tax year and realize a capital gain, offset taxes to that gain by selling stock with an equivalent loss. Long term and short term capital gains can be offset with respective long term and short term capital losses – in the same year. In some cases, it may be possible to carry part of a capital loss into the next tax year to offset anticipated future gains. Consult a tax advisor.

 4    Include Purchasing and Selling Brokerage Commissions in Your Cost Basis

Capital gains are calculated by subtracting your cost basis from the selling price of the stock. The cost basis includes the purchase price, the purchasing commissions, and the sales commissions. If the cost basis includes all your commissions associated with this stock, it will mean a greater deduction for you, and ultimately less capital gains and less capital gains tax.

 5    Invest in Stocks through Mutual Funds

If you invest in stocks through mutual funds, some mutual funds can be chosen to minimize your tax liability. Look at the fund’s turnover ratio, a value that reflects the sale of shares in the fund. If the ratio is low, your tax liability will be lower than if the turnover ratio is high. Some mutual funds are being marketed as “tax-efficient” funds – meaning that sales of holdings are intentionally infrequent, fund gains are strategically offset by sales made at a loss, and fund holdings tend to reflect stocks with smaller dividends (since dividends are taxed as income).

 6    Consider Your Tax Bracket and Your Financial Status in a Tax Year

Your current tax bracket, the deductions you may be able to take in a given tax year, and anything else that affects your tax status may impact when it is most beneficial to sell, or to hold, a stock. In some years it may be to your advantage to defer selling stock and incurring capital gains tax. Consider all the aspects of your tax status, or consult with a tax advisor, before selling stock and incurring capital gains tax.

 7    Research the Possibility of Investment-Related Tax Deductions