If you regularly have a large tax payment or large refund, you should review and adjust your withholding to be more efficient.
capital gains and losses
Minimize taxes by adjusting your portfolio
Since the markets have had some downturns lately, now could be a good time to make some adjustments to your portfolio, rebalancing and the like, that may help to minimize taxes. In doing so you can possibly get a bit of advantage in your tax bill from a loss you’ve experienced in your investments. If you have taxable accounts, that is, accounts that are not tax-deferred (like IRAs or 401(k) plans) when you sell your investments there is capital gains treatment on your gains and losses. If you have losses and gains in your taxable account, when you realize these losses and gains by selling the holdings, your losses are subtracted from the gains, and if the result is positive (net gains), these gains are taxed at the preferable long-term capital gains rates. I say this is preferable as the rate is less, often much less, than ordinary income tax […]
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Capital Gains and Losses and Your Tax Return
When you own certain kinds of assets and you sell them, you may incur a capital gain or loss that is applicable to your income tax preparation. If the original purchase price plus applicable expenses associated with the asset (known as the basis) is less than the proceeds that you receive from the sale of the asset, you have incurred a capital gain. On the other hand, if the basis of your asset is greater than the proceeds from the sale, you have incurred a capital loss. Capital gains are taxable to you, using a separate tax rate – and capital losses can be deducted from your capital gains for the year. Excess capital losses (above your capital gains for the year) can be used to reduce your income by up to $3,000 per year, carried forward until used up (or for your lifetime). The IRS recently produced their Tax […]
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Capital Gains and Losses on Your Tax Return
When you sell things, including stocks, bonds, real estate, collectibles, and other items, you may either gain money or lose money from the original purchase price. This gain or loss is known as a capital gain or capital loss, and (with some exceptions) you will report these capital gains or losses on your income tax return. Often the gains are afforded special tax rates and treatment, and the losses provide additional benefits as well. This entire area of tax reporting can be confusing and there are special rules that you need to follow in order to make sure that you report these transactions correctly and pay the appropriate taxes. The IRS recently published their Tax Tip 2013-28, which details Ten Facts about Capital Gains and Losses. The actual text of the Tip is below: Ten Facts about Capital Gains and Losses The term “capital asset” for tax purposes applies to […]
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Investing in Taxable Accounts vs. IRAs
When investing beyond an employer-sponsored retirement plan, you have a choice to make, between using an IRA, a Roth IRA, or a taxable, non-deferred investment account. In making this choice your primary consideration should be the tax implications. It’s easy to understand the current tax implications: if you invest in a traditional IRA and your contributions are deductible, you are saving the income tax of the deductible contribution. In all other choices, there is no current tax impact. For non-deductible contributions to a traditional IRA, or regular contributions to a Roth IRA, or saving in a taxable account, you are paying income tax as you’ve earned the money, regardless of what you do with it. The second area to consider tax implications on all of these types of accounts is when there is income produced from the investments within each type of account. Income produced includes capital gains from sales […]
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Selling Your Home? IRS Offers Tax Tips
With the real estate market beginning to turn around a bit, many people are buying new homes and selling their old homes. Recently the IRS published their Summertime Tax Tip 2012-14, which outlines several tips you should be aware of when selling a home. The actual text of the Tax Tip is presented below: Ten Tax Tips for Individuals Selling Their Home The Internal Revenue Service has some important information for those who have sold or are about to sell their home. If you have a gain from the sale of your main home, you may be able to exclude all or part of that gain from your income. Here are 10 tips from the IRS to keep in mind when selling your home. 1. In general, you are eligible to exclude the gain from income if you have owned and used your home as your main home for two […]
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A Few Upcoming Tax Changes to Keep in Mind
As 2013 draws ever nearer, we need to keep a few potential tax changes in mind. These items are subject to change – they’ve changed in the past at the last minute, so there’s no reason to believe they won’t change again – but if they don’t we should be planning ahead. Flex-Spending Health Accounts If your employer provides you with a Flex-Spending Account for healthcare expenses, there will be some changes coming up in 2013. This is the kind of account where you set aside a sum of money each payday, pre-tax, that can be used throughout the year on deductibles, non-covered medical expenses, and co-pays. Beginning in 2013, these plans will be limited to a total of $2,500 per year in salary deferral. This comes about as a part of the Obama-care legislation. Currently there is no cap on contributions to these plans, although some employers place a […]
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Using the Prohibited Transaction Rules to Your Advantage
Image by chris_wilson via Flickr I’ve written in the past about the types of transactions that are prohibited in your IRA, and how these transactions are generally quite onerous if you happen to use one of them. In fact what happens is that your entire IRA becomes disqualified as of the first of the year in which the transaction occurred. So – if you’re inquisitive you might wonder: How could I use this to my advantage? It is possible to work this rule in your favor – but I don’t necessarily recommend it. I present this option here as an exercise of what could be done according to the rules. I learned this one from Natalie Choate, by the way, who you may recall I regard as a rock star in the world of IRA law. Working in your favor So, given that the rule against prohibited transactions requires that […]
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