Stocks gain as confidence rebounds

The stock market has been a concern for many lately; especially when it comes to retirement nest eggs. You might rest easier tonight knowing that the stock market is doing better today than its intimidating dip yesterday. According to CNNMoney.com, markets were up for U.S. stocks led by a rebounding energy sector. The Dow Jones rose 225.5 points, or 2.3%, the S&P 500 index added 28 points (2.6%) and the Nasdaq is up 59 points, also 2.6%.

It seems the markets are being “driven by minute-to-minute reporting” of the news. Many people bailed out of BP stock yesterday upon hearing there would be a criminal investigation of the Gulf of Mexico oil spill and the latest attempt to plug the spill failed. Yet, as many lumped together all of the oil companies, it was realized BP made a mistake but not all oil is a bad investment.

Technology shares also increased as people realized their value. The National Association of Realtors said its pending home index which measures existing home sales, rose 6% in April when it was only expected to rise by 4.3%. General Motors and Ford Motor both posted large increases in May sales of their brands, as well as Toyota, only less.

In world markets, Japan’s index slid 1.1% after the nation’s prime minister resigned. Hong Kong’s Hang Seng index fell even lower. In the meantime, the euro rose against the dollar at $1.2247, bouncing back from the four-year low it had yesterday. Treasury bond prices are also lower. Sleep well U.S. investors, even if only for a night.

You can read the full article on CNNMoney.com here. If you are an investor or interested in investing, let me know what you think of this blog.

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Exclusion of Gain on the Sale of Certain Small Business Stock

Good news for individuals who invest in small businesses; you can now get an extra tax incentive!

As part of the American Recovery and Reinvestment Act (ARRA), investors in qualified small business stock can exclude 75 percent of the gain when they sell their stock. You usually can exclude up to 50% of your gain from your income from the sale or trade of qualified small business stock. See http://www.irs.gov/pub/irs-pdf/p550.pdf for more. This exclusion applies only if the qualified small business stock is acquired after Feb. 17, 2009 and before Jan. 1, 2011, and held for more than five years. In most cases, the exclusion rate for previously-acquired stock remains at 50 percent. The remaining gain will be taxed at a lower rate than what generally applies to one’s income. These lower rates are called the maximum capital gain rates.

So, how do you know if you are eligible for the tax incentive? In order to know whether it applies to you, you need to understand how the IRS defines small business and small business stock.

Description of qualified "small business": To qualify as a small business for the exclusion

1. The stock must be in a C corporation
2. The corporation’s gross assets cannot have exceeded $50 million when the stock was issued
3. The corporation, including all “over 50-percent-owned” subsidiaries, cannot have gross assets that exceed $50 million. This includes cash, the value of contributed property, and the bases of other assets, without regard for short-term debt.

As an eligible corporation, you must submit information regarding your corporation’s aggregate gross assets to the Secretary of the Treasury and to your stockholders.

If you are an investor, talk to your CPA or tax attorney to make sure you qualify for this tax break. Hopefully this new incentive will help you out next tax season. I wish everyone success in their investing adventures!

Tax Tips for the Stock Investor

Just before the weekend, one of my favorite blogs (TheWildInvestor.com) 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.