Ordinary income and capital gains

Benefits for the evaluation of their investment will be taxed in two ways, depending on the types of services:

Revenue
If the benefits of the balance of investments is taxed, your profit is the same as the rate of wages in full for the regular tax rates. If your tax bracket is 28 percent, then this type of revenue for investment profits will be taxed on.

Two types of investment profits are taxed as ordinary income:

• Dividends - Upon receipt of dividends from its people (both in cash and securities), to receive dividends are taxed as ordinary income. This applies even if the dividends in terms of reinvestment of dividends. However, if dividends are tax sheltered plan, such as an IRA or 401 (K), then you are exempt from tax, while on the plan. In January, investors will receive a 1099-DIV statement by the issuer, dividends, information on the amount of dividends paid during the previous year. Consult your tax advisor, as the latest tax legislation to offer tax breaks for dividends.

• Short-term capital gain - If you sell shares in the profits and ownership of the shares, only a year or less, the profit is considered ordinary income. If you follow steps 1 and August 31, sold in July next year, which is less than a year. To calculate the time and date (or date of execution). This date is the date on which the running for the settlement date. However, if these benefits are preferential tax plan, such as 401 (K) or IRA, taxes are not active.

Long-term capital gains
Long-term capital gains in general is much better for you, insofar as concerns taxes. The tax laws reward the patient investor. According to the population, at least one year and one day (what a difference a day!) The tax rate will be. Learn more about the return on capital of IRS publication 550 "Investment income and expenses." Since the tax on capital gains tax is more important to investors.

Administration of tax benefits of your investment is that you can control. Earnings are taxed if the sale is actually made. (In other words, only if the profit is realized. ") If your stock GazillionBucks, Inc, from $ 5 per share to $ 87, $ 82, that recognition is not taxed if you are really for sale of shares. Until then, until it sells, which is to win "unrealized." Carefully the time of the sale of their shares for at least one year in the amount of taxes you have to do it.

If you are buying shares at the time of purchase and the cost of acquisition (the purchase price for additional costs such as commissions). This information is very important and taxes, if you decide to sell their shares. Date of purchase will make the holding period (the time you have owned the shares), which determines whether the profits are considered short-term or long term.

Suppose you bought 100 shares GazillionBucks, Inc for $ 5 and $ 18 fee for your price is $ 518 (100 shares at $ 5 to $ 18-EC). If you sell shares at $ 87 and $ 24 fee for the commission, the total sales of $ 8676 (100 shares at $ 87 less $ 24 Commission). If the sale of less than one year after purchase, is a short-term profit. With the support of 28 percent taxes, short-term profits $ 8158 is 28 percent. (A short-term gains are taxed as ordinary income.) Any gain (or loss) on short-selling short-term, regardless of how long the position remains open.

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