Tax Tip from the week of November 14, 2005
As year-end approaches, you should review your investment portfolio. Look for notable winners or losers, rebalance your portfolio between stocks, bonds, and other investments, and decide what to keep and what to sell.
A year-end review also lets you manage income by offsetting losses against gains or ordinary income. Don’t let taxes drive your whole strategy — investment fundamentals should do that. But factor in taxes as you make buy/sell decisions.
Here are some tax pointers to keep in mind.
Your maximum tax rate on most long-term capital gains is 15%, while you’ll pay taxes at ordinary income rates on short-term gains. The 15% rate drops to 5% if you’re in the lower two tax brackets for ordinary income.
The minimum holding period for long-term treatment is 12 months.
The long-term rate on some assets, such as antiques, paintings, and other collectibles, is greater than 15%.
You’ll pay tax at 15% (or 5%) on “qualifying” dividend income. Dividends from most U.S.-traded stocks and mutual funds qualify for these rates.
Interest on bank accounts and bonds is taxed as ordinary income. Dividends from bond funds or money market funds also count as ordinary income.
You can offset up to $3,000 of net losses against ordinary income (such as wages), and you can carry over any excess to future years.
If you’re planning to sell a stock, remember to include any reinvested dividends in your cost basis. This can reduce the size of any gain or increase a tax loss.
If you’re planning a charitable contribution, consider giving appreciated stocks instead of cash. In many cases this can cut your taxes.
For detailed answers to your investment tax questions, please contact our office.
Seattle Bellevue Tax Accountants
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