Filed Under:Life Insurance, Life Planning Strategies

Americans not tax-smart about investment solutions

A large majority of Americans are confident that they take advantage of all tax breaks, but almost half admit they are not tax-smart when investing, according to a new tax study from BMO Harris Financial Advisors.

More than eight in 10 respondents (83 percent) are confident that their completed tax returns will take advantage of all tax deductions, tax credits or other tax savings available to them.

However, 45 percent of survey respondents admit they are not knowledgeable about tax-smart investment solutions designed to reduce their tax liability, including protecting their investments from a tax perspective and transitioning them in a tax-efficient manner to the next generation. The study also finds that:

  • 44 percent of respondents understand how capital gains are taxed;
  • 47 percent understand how dividend income is treated from a tax perspective;

For those who expect a tax refund:

  • 44 percent will cover household bills and/or reduce their debt load (other than mortgage);
  • 35 percent will save or invest;
  • 16 percent will fund vacations or purchase leisure items;
  • 13 percent will do renovations;
  • 8 percent have decided to pay down their mortgages; and
  • Just under 10 percent will donate their tax refunds to charitable causes.

Nearly half of survey respondents (48 percent) prepare their own tax returns.

The BMO survey was conducted by Pollara with an online sample of 1,000 Americans 18 years of age and over, between March 7th and March 10th, 2014. A probability sample of this size would be accurate to +/- 3.1 percent, 19 times out of 20.

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