5 Things to know about Taxes and Investments

5 Things to know about Taxes and Investments

When the stock market goes up, not only individual investors win so does Uncle Sam because he is standing by the collect of share of everybody's profits. I am Kevin McCormally with five things you must know about taxes and your investments.

1. Watch the calendar

First, watch the calender. The tax law has special, gentle rate for long-term capital gains. That's the profit from investments you own for more than a year before selling. If you sell before a year, you have a short-term capital gain and that gets whacked in your top tax bracket.

2. Watch you tax basis

Watch your tax basis, now that's tax then before how much you have invested in a investment, the higher your basis, the lower your profit, the less tax you're owing yourself. If you reinvest dividends in mutual fund, each reinvestment increases your basis. Years ago the Head of the IRS told me that he thinks millions of investors overpay their taxes because they miss this point.

3. "Taxable Event"

When you move money from one mutual fund to another, that's considered a Taxable Event and the IRS wants to share your profit, or if you lost money, you get to deduct a loss.

4. No tax in IRAs & 401k

You can ignore that Taxable Event rule if your money is in IRA or 401k. There's no tax due on trading in these tax shelters. Also, there is no tax due when you take money out of a money market mutual fund.

5. Appreciated stock as donation

When you are thinking about a big cheerful gift, consider making it with appreciated stock rather than with cash. As long as you have owned the stock for more than a year, you get to deduct the full value of the stock on the day of the gift and you never have to pay tax on the appreciation that build up while you owned it.

I am Kevin McCormally and these are the basics.


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