Ask a Fool: How Can I Invest in Stocks and Keep My Tax Bill Low?

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Q: I'm want to start investing in stocks, but I'm worried about adding to my tax bill. What would you suggest?

When it comes to long-term stock investing in a taxable brokerage account, the biggest tax consideration is dividends. Capital gains resulting from stock prices rising aren't taxable until you sell, so this is fairly easy to control. If you don't want to pay capital gains taxes in 2018, don't sell your profitable stocks this year.

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Dividends, on the other hand, are taxable, even if you choose to reinvest them, and therefore can add significantly to your tax bill.

So the way to keep your taxes low in your brokerage account is to focus on stocks with lots of growth potential but that don't pay dividends. This can be easier said than done -- after all, many dividend stocks look like fantastic long-term investments. However, there are a few exceptions.

Berkshire Hathaway is perhaps the best example of a rock-solid growth company that doesn't pay dividends. The Warren Buffett-led conglomerate owns dozens of businesses and common stock positions, and chooses to invest its profits back into the business, instead of paying cash to shareholders.

Other great examples include tech giants like Alphabet and Amazon.com, both of which are also focused on growth instead of paying dividends.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Matthew Frankel owns shares of BRK-B. The Motley Fool owns shares of and recommends GOOG, GOOGL, AMZN, and BRK-B. The Motley Fool has a disclosure policy.

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