Accountant
It is evident that the stock market has rallied immensely over the past four or so years, leaving several investors with very large capital gains and even some large positions in a few funds or stocks. There are those that are extremely worried about losing these big gains, but I really wonder how they can end up selling without realizing considerable taxes. The federal capital gains tax rate in the United States was increased from 15% to 23.8% in 2013 for the top income taxpayers. One worthy rule of thumb concerning tax planning is actually to defer paying taxes for as long as you possibly can. I strongly believe that one of the keys to building immense wealth over long periods of time is to actually greatly reduce the "leak" in your portfolio from taxes and investment costs. Most people realize that it is very smart to purchase low and sell high, but selling what is up the most often involves paying the largest capital gains tax.
Purchase and Hold
I strongly believe that the best long-term investment plan basically involves purchasing and holding high quality investments. Avoiding or deferring capital gains taxes is in fact one of the main benefits of using a purchase and hold investment stratagem. I believe that by investing in funds that have low turnover, and by reducing trading activity ourselves, I can greatly help clients evade a considerable amount of taxes over time. I always try to make the most of my customer's after-tax investment returns. I have actually come up with a unique financial model that helps compare holding an investment with a big gain to selling it and disbursing the taxes, and re-investing the proceeds into a totally different and better investment with optimistically higher predictable future returns. If the existing investment has virtually the same future returns as the new investment (let’s say a 30% total capital gains tax rate and a 100% long-term gain), then you are at an advantage holding it instead of selling and paying the necessary tax by 7% after ten years, 12% after twenty years, and about 18% if you decide to hold the position till death. The new better investment should have returns that are 0.9% annually way better (in the next ten years) than the current investment so as to break even and regain the money you actually lost by selling and paying all capital gains taxes. Always remember that the greater the prevailing capital gain percentage in your current investment, the more it becomes sensible to continue holding on to the investment and evade paying taxes on it. To better understand this concept, it is recommended that you find a tax professional for the stock market.
Own Quality Investments
It is not a secret anymore. One of the best ways to be very confident in a purchase and hold investment plan, and evade trading and also capital gains taxes, is to simply invest only in quality diversified investments that you can be able to imagine yourself owning for about ten to twenty years or even more. This way you will not really feel the urge to sell something simply because it is up, is losing its competitive edge, looks overvalued, just reported horrible news, etc. It is likely hard to imagine being very confident in holding big positions in all of your personal risky stocks for ten to about 20+ years. I personally would prefer investing in varied low-cost index-based funds that actually own hundreds if not thousands of individual securities.
Q: In the last eighteen months, my investment portfolio has drastically declined. I’m I able to get any tax benefits?
When an individual sell investments, like bonds, stocks, or mutual funds at a gain, he or she actually pay taxes on the capital gains. But when a person sells at a loss, he or she can easily force the Internal Revenue Service to offer him a tax break.
Temporary or rather short-term capital gains are those gains on investments held for about one year or even less and are normally taxed at your income tax rate. On the other hand, long-term capital gains are the gains on investments held for more than a year and are not taxable, but only if you are taxed at a 15% rate or are way below the 15% income tax range. An unrestricted amount of short-term gains can easily be offset with short-term losses.
Unlimited amount of long-term gains can also be offset with long-term losses. Moreover, you can be able to force the IRS to give you a net $3,000 yearly loss against your income. You can avoid paying $1,050 in income taxes if you are in the top most tax bracket of 35%.
So, what exactly happens if you end up getting a net loss of about $36,000, for instance? You can simply carryover the full $36,000 into the coming year to counterbalance any gains next year. But if you have no gains to offset then you can just take a $3,000 yearly loss against your income for twelve years. Unluckily, all your carryover losses die as soon as you die.
Just like life itself, the timing of your transactions is the most important thing. The Internal Revenue Service discourages individuals from locking in their losses and buying back substantially identical or the same investment through its wash sale rule.
Always make sure your losses are well taken care of whilst the losses are good. You can also decide to get a competent tax accountant to help you. And on that note, it is very important that you get quality services from a professional. I know that getting a reliable and expert tax preparer in Benton is a nightmare. You don’t really have to go through the hustle of trying to find a tax preparer. I’m at your service. With proven record, I’m all you need. Contact me today and have a feel of my personalized services that will help you get to the level you want.
Williams Tax & Bookkeeping