Monday, March 30, 2009

Tax Tips for the Stock Investor

Just before the weekend, one of my favorite blogs ( posted a blog entry with a list of helpful tax tips for stock investors, and even mentioned my book for further information. Check out a snippet of the entry below.

With the U.S tax deadline right around the corner (April 15), many people are looking for various deductions and other tax relief to help lower their taxes. If you have ever paid taxes on your gains from the stock market, then you probably know how demoralizing it can be. On the flip side, reporting losses aren’t always bad.

Some tax tips for the average stock investor:

Because you can’t distinguish your stock trading as a business expense there are not many deductions that can be made.

Capital Gains - The IRS considers short-term to be less than one year and long-term to be one year plus. Obviously the government would like you to hold onto your investments for longer, so it is no surprise that you will have to pay higher taxes on gains made on a stock you sold within a year. This can range from 15-35%. Gains made on stocks after a year are taxed a maximum of 15%.

If you are holding onto mutual funds, even if you didn’t sell, you may still have to pay capital gains tax if the fund itself sold off some of its holdings. Another reason to hate mutual funds.

Capital Losses - As bad as losses may seem they can actually bring you some tax relief. In the case you have more losses than gains, you can take $3,000 of losses against other types of income.

Special Accounts - Contributing to your IRA or 401k can reduce your taxable income and give you tax-deferred growth, where you’ll only pay tax when you take money out. For the most part, you do not need to pay tax on interests and dividends on Roth IRAs. Some other accounts to take advantage of are health saving accounts and 529 plans.

As you can see, Uncle Sam would prefer for you to hold onto your investments longer. While there are not too many tax breaks for the average investor, you as a whole might be qualified for some breaks you never knew. To learn more, you can check out Roni Deutch’s book, The Tax Lady’s Guide to Beating the IRS and Saving Big Bucks on Your Taxes.

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