Now if you’re like most folks, you’re likely thinking, “I’m buying and selling stocks and making a lot of money–who cares about being tax efficient?” Well, oftentimes, it’s those very folks who are blindsided when it comes time to pay Uncle Sam on April 15th.

They say nothing is certain except death and taxes, and I could not agree more. While we can’t avoid our own mortality, here are tax tips to think about when divvying up Uncle Sam’s slice of your portfolio!

Pay Uncle Sam as Little as Possible

While many investors are painfully aware of capital gains tax, some may not realize that capital gains are assessed in one of two ways: in short-term gains and long-term gains. A short-term gain is a gain on a particular asset that has been held for less than a year and taxed as ordinary income at your normal tax rate (for most investors, that’s a hefty 35%!)

Now, if you wait a year and a day before selling off that same asset, you’ll only have to pay 15%–less than half! That’s why it is so important for investors to consider tax efficiency as a tool in their long-term investment portfolios.

Bush-Era Tax Cuts Won’t Last

Whether you’re a Republican or Democrat, President Bush’s 2003 tax cuts have helped many investors alleviate much of their heavy tax burden. Among other tax cuts, the tax rate on capital gains was more than cut in half from 35% to 15%, and so was the tax on dividends from common stocks.

Before the Republicans made good on their promises to slash taxes, dividends were taxed as ordinary income at the taxpayer’s regular income tax rate. Sound confusing? Let me quickly explain.

Let’s say back in 2002, you bought a bond that pays $100 in interest. Before Bush slashed the capital gains tax rate, you would have paid a tax of 35% on any dividend gain made off that $100 bond. Ouch!

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Today, you only have to 15% in tax on any dividends made. This is a huge advantage for investors and gives you another way to use stocks to lower the taxes on your investment portfolio.

Smart Selling Strategies

Let’s look at exactly how important it is to invest in a tax- efficient way. In February of 2007, I recommended Research in Motion (RIMM) to my Blue Chip Growth subscribers. As you may know, Research in Motion makes the popular BlackBerry phone and being a BlackBerry lover myself, I expected great things from both the company and the stock. I have to say, Research in Motion did not disappoint. A year later we are up 129%!

If we sold right now, what a great gain that would be. We would pay just 15% tax on our gain. But suppose we weren’t so patient with RIMM and decided to sell it last fall when the stock hit $70, we’d have been up 70%! A nice gain if we sold it, except for the fact that if we sold then, 35% of the gain would have gone to the federal government in the form of short term capital gains tax! So much for that stellar stock…

That scenario seems pretty cut and dry, doesn’t it? But let’s take a look at what happens if, say, the stock price plummeted as we waited the required year to hold it?

Many investors bought $10,000 worth of Research in Motion when I first recommended it in Blue Chip Growth. Today, their investment would be worth $24,700. Not bad.

But if they sold her shares tomorrow, they would have had to fork over 35% which comes out to be almost $5,000! If they waited patiently for a year to pass and pay only 15% long-term capital gains, their tax bill would drop nearly $3,000. In fact, even if Research in Motion’s stock took a sharp 14% drop, as long as they sold at the lower tax rate, she’d still come out ahead! That’s how important tax planning can be!

It’s Your Decision: Pay 15%… or 35%

At Blue Chip Growth, we take tax efficiency very seriously. Our objective is to buy the very best stocks and hold them at least one full year in order to minimize the amount of tax we pay on our stellar gains. In fact, over the years, our biggest gains have come from stocks that we’ve held for two years or more so that capital gains taxes were kept as low as possible.

So it is really your decision: 15% or 35%? Seems to be an easy choice to me! By focusing on tax efficiency while picking the right stocks, my Blue Chip Growth subscribers increase their overall returns and the amount of money available to make their financial goals and dreams come to fruition!

At Blue Chip Growth, we stake our reputation on every investment we make and will return your money if we fail to meet your expectations. Our goal is to hand our readers 35% to 50% gains every 12 months. It’s a vow I’ve kept for more than two decades! Sign up today!