Understanding taxes on your investment accounts

At this time of year many Americans are thinking about taxes. Even if you’ve already filed your 2016 returns, it’s a good idea to start thinking about next year. We know that figuring out taxes on your investments can be confusing, so here are some things you should know. Understand the taxes you pay on investment income When you sell a stock or mutual fund at a profit, you will usually get taxed. If you sell within the first year you own that security you’ll pay tax at ordinary rates, which could be as high as 39.6% depending on your income level. But the tax code is designed to encourage long-term investing, so if you hold that same security for longer than a year, you’ll pay a lower rate — a maximum of 20% for most stocks and funds. Strive for long-term investing in taxable accounts and minimize frequent trading whenever possible. Keep in mind that you’ll also pay tax on mutual fund distributions even if you don’t sell any shares of the fund yourself. When the portfolio manager sells some of the fund’s holdings, as happens in the normal course of managing the fund, the taxable gains are

April 4, 2017 No Comments

Turn lemons into lemonade during periods of volatility

Staying focused on the bright side is admittedly hard to do when the markets are volatile. Fortunately, there are always some silver linings amid market volatility. For investors who feel the urge to do something in response to the markets, here are four things you can do to help minimize your tax exposure without altering your asset allocation or getting off track from your investment plan: For your taxable accounts, a good strategy is to harvest portfolio losses when volatility strikes in order to offset gains elsewhere in your portfolio. You “harvest losses” when you sell a security that has experienced a loss and use that loss to offset realized gains. The goal is to reduce your overall tax liability in your portfolio. Harvesting throughout the year, in response to market declines, can be a smart way to maximize the value of this strategy. Of course, you’ll want to steer clear of the Internal Revenue Service’s wash sale rules. Market declines can offer you a good opportunity to convert your IRA into a Roth IRA. When an IRA declines in value, the conversion taxes won’t be quite so burdensome. And once in a Roth account, all future growth of those

June 23, 2016 6 Comments

Four year-end tax strategies to consider

It’s hard to believe we’re fast approaching the end of 2015, but it’s time to start thinking about the 2015 tax season. Here are four simple yet effective tax minimization strategies to consider before the end of the year: 1. Harvest capital losses. While the recent market volatility has been frustrating, it does provide opportunities to realize capital losses. With high-income taxpayers facing federal income taxes of up to 23.8% on long-term capital gains, harvesting losses can be an effective way to increase after-tax returns. Before the end of the year, offset gains in your portfolio by selling securities with losses. Be careful to avoid the “wash-sale” rule, which doesn’t allow you to claim losses when you buy replacement securities either before or after you sell substantially identical securities. 2. Contribute appreciated securities to charities. Donating appreciated securities (held for at least a year) to charity can be a great way to minimize your taxes. You will receive a deduction for the fair market value of the security on your taxes. You’ll avoid paying capital gains tax on that security and the value of your contribution will be enhanced because the charity (as a tax-exempt organization) will also avoid paying

December 2, 2015 No Comments