Tax season is often stressful. However, you can soften the tax blow by using this time to do some spring cleaning by selecting stocks that will benefit you during tax season. As a result, the deadline for submitting your return on Apr. 15 will become more enjoyable than stressful moving forward.
The tax season stocks featured will not automatically lead to a lower tax bill. However, by crafting a tax-efficient strategy, you can potentially lower your tax expenses in the years to come while gaining from dividends and tax appreciation.
Two of the names profiled are companies with strong dividend profiles. The last one is a growth stock that doesn’t pay a dividend. But by holding it for a long while, you can defer your tax payment and enjoy excellent capital appreciation.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE: JNJ) is one of the best Dividend Kings for investors looking to lighten their tax bill. By picking this blue-chip stock, you can access a company that has consecutively raised dividends for 62 years.
Due to its diverse product portfolio, JNJ is a favorite among investors, especially retirees. There are very few chinks in the armor, as its stability, AAA-rated balance sheet and financial prowess combine to create one of the best tax season stocks out there.
Most recently, JNJ delivered stronger-than-expected earnings for Q4’23. The figures capped off a great fiscal year for the blue-chip stock, which had beaten analyst projections in all four quarters.
The healthcare giant’s divestment of Kenvue (NYSE:KVUE) further amplifies its appeal, allowing it to focus fully on its core pharmaceutical and medical devices sectors.
Analysts rate Johnson & Johnson as a “moderate buy,” forecasting a roughly 12% upside.
To slash your tax expenses, check if you received qualified dividends from the healthcare giant. Qualified dividends are taxed lower than ordinary income, which benefits high-income persons. Check your Form 1099-DIV from your broker. Box 1a will show the entire dividend from JNJ, and Box 1b indicates whether it is eligible or not.
Equinix (EQIX)
Equinix (NASDAQ:EQIX) distinguishes itself among tax season stocks because it is a real estate investment trust (REIT) focused on data centers.
REITs get plenty of love from income-centric investors because of the 90% rule. Under the REIT rule, Equinix, for example, will need to ensure the bulk of assets and income are from real estate. This is non-exceptional because whether you are Hersha Hospitality Trust (NYSE:HT), dealing with hotels, or a shopping mall REIT, everything needs to come back to real estate.
In addition, it should distribute 90% of its taxable income in the form of dividends to its shareholders. In return, EQIX is exempt from corporation tax.
As discussed, REITs are not exactly like one another. Equinix focuses on data centers, a market already worth $194.81 billion in 2022, which is expected to grow at a compound annual growth rate of 11% between 2023 and 2030, according to Grand View Research data.
Equinix is taking full advantage of this situation, stringing together four earnings beats in a row. The latest quarter was no exception, with the REIT surpassing estimates by a healthy 7%. Plus, Equinix boasts a three-year free cash flow growth rate of 147%, which means the 2% yield stands well protected.
Apart from the dividend, investing in Equinix could offer tax benefits. Investors typically like to hold on to REIT stocks for a long time. Particularly, the return on capital can reduce your investment’s cost basis, potentially deferring taxes until you sell the shares.
Tesla (TSLA)
Tesla (NASDAQ:TSLA) stock is down 35% YTD, as disappointing January delivery numbers and depressed margins lead to a pullback. Consumer interest is also down due to a lack of new models.
However, TSLA stock has the potential to mount a comeback. The EV giant is anticipating healthy numbers for the Cybertruck, which has a substantial order backlog. In addition, Tesla’s venture into producing semi-trailer trucks is expected to produce a further $12.5 billion in revenue. Tesla aims to make at least 50,000 of these trucks annually.
Tesla’s ventures into autonomous driving technology and Megapack battery storage solutions open up new avenues for development. The company’s energy-generating and storage income has tripled since 2020, and its Tesla Energy division soared to $6 billion in revenue by 2023.
With an average price target of $205, the stock comes holds upside potential of 26% from its last price of $162.5, according to analyst estimates.
Tesla, much like other growth stocks, does not pay a dividend, meaning there is no immediate tax. So, if you buy TSLA stock and it doubles, you will not pay any tax. Instead, the tax is deferred, potentially at long-term capital gains rates, which are lower than regular income tax rates.
On the publication date, Faizan Farooque did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
