If you have substantial investment gains or other income this year, make you know how they will affect your taxes, and be prepared to deal with them.
If you have investment losses, on the other hand, you also need to know how your tax return can be affected. You can change your strategy for the tax year on the basis of a significant loss or two.
The following are the most common ways of investment gains, losses and other income affect your taxes, starting with those charged at the highest rate:
1. investment income taxed at the ordinary rate of income tax
If you have taxable interest, whether bonds or a savings account, you include interest with your income and pay tax at the rate of tax on ordinary income.
You also pay a tax rate on ordinary income on short-term investment gains. You must not be a day trader to have short-term capital gains. If you sell an asset at a gain a year or less, you usually have to pay tax rates on ordinary income on short-term gains.
2. The collection of investment income taxed at a special rate
all investments are in stocks, bonds and so on. Some people invest in what they love, like art, antiques and collectibles. They often do very well on these investments.
The Internal Revenue Service (IRS) caps the tax rate on long-term gains of investments in collectibles to 28 percent. This means that if you're in the tax bracket of 28 percent or more, your gain from the sale of collectibles is taxed at 28 percent. If you're in the tax bracket of 25 percent or less (which is most of us), you pay your tax rate on ordinary income on gains from collection.
3. Investment income taxed at a reduced rate of capital gains
Sometimes, if you hold on to assets such as stocks, bonds and real estate investing a little longer you can save a lot on taxes. Instead of paying your tax rate on ordinary income, you pay the rate for capital gains reduces your profit. You will need to wait until you have owned the asset over a year (a year and a day is fine).
Your rate for capital gains is based on your tax bracket on income. If you are near the threshold for a particular medium, you can pay a rate on a portion of your capital gain, and another rate for the rest. TaxAct calculate your tax on capital gains for you. Here the rate of capital gains, based on the tax bracket on income.
- If your regular tax rate would be 39.6 percent, your maximum capital gains rate of 20 percent
- If your regular tax rate would 25, 28, 33 or 35 percent, your maximum capital gains rate of 15 percent.
- If you're in the tax bracket of 10 to 15 percent for ordinary income, capital gains your maximum rate at 0 percent.
4. Dividend income taxed at a special rate
When you own stock, you own part of a company and are entitled to receive a portion of profits . The company has already paid tax on income, however. That's why you, as a shareholder, to obtain a reduced rate when the company passes on the benefits to you in the form of eligible dividends.
For most taxpayers, the tax rate on dividends is 15 percent. The maximum rates on dividends are the same as those for the net capital gain.
5. Retirement income investment account
As long as you keep your money in a qualified retirement plan, you do not have to pay tax on current income of any gain or investment income. For some plans, gains tax is only postponed. When you finally take the money out of the plan, usually at retirement, you pay tax on the gain and other statements
With other plans, you never pay tax on your investment gains -. If you follow all the rules.
for example, when you contribute to a Roth IRA, you do not receive a tax deduction for the contribution. When you withdraw money in retirement, however, you do not pay tax or the amount initially paid and the return on investment.
6. Tax-exempt investment income
Some investments offer interest free of tax revenue. These investments pay lower interest rates, which makes them generally a good idea for taxpayers in tax brackets with higher incomes.
If you buy US Treasury issues, you pay federal tax on interest, but you do not have to pay state or local taxes on it.
municipal bonds are a favorite investment for very high net worth taxpayers. Not only will you pay no tax on them, but if you buy them in the state where you live, you also will not have to pay the state, federal or local taxes, either.
7. investment losses
If you sell shares or other investment property at a loss, you can first use the loss to offset other capital gains in the year. If you have a residual loss, you can use it to offset your wages and other income - but only up to $ 3,000 per year. You can carry forward unused losses for taxation years.
Tax planning for investment gains and losses
If you plan to have more taxes this year, based on investment earnings, you may have to make quarterly payments estimated tax to avoid penalties and fiscal interests. You can use TaxAct to estimate your tax bill for the year, and create good estimates of tax payment.
If your income last year was less than you expect to be this year with the tax gain, the "safe harbor amount of rules" may prevent you from due to a payment penalty insufficient estimated taxes.
However, when you have a gain, it's a good idea to set aside an amount for taxes immediately. It is much easier to do it while you have the cash on hand.
Alternatively if you have a loss of investment, you can sell other assets that are passed in value before the end of the year. You can use the losses to offset gains in the same tax year.
If you know that you take a loss of up to $ 3,000 of your regular income, you can reduce your tax income withholding or estimated tax payments to account for the tax you will save.
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