A Taxing Investment
April 15 - The most dreaded day of the year is right around the corner. Are you ready? Some of the most neglected (and misunderstood) tax issues are those related to your investments. If you invest with taxes in mind, you can avoid a nasty surprise when Uncle Sam comes to collect.
The tax advisors are chiming in left and right on this issue. They say that you should limit yourself - and your investments - in order to minimize your tax burden for the immediate future. Those in the high tax brackets should go mainly for retirement accounts (as in tax deferred investments) and tax free investments, and those in the lower brackets should feel free to invest as they see fit. I'm sorry, but I don't necessarily agree with their synopsis.
Dividends, interest, and short term capital gains from your investments are all taxable at your standard income tax rate. Long term capital gains (that is - those coming from investments that you have held for over a year) are taxable at a lower rate. It would make sense then, for someone in a higher bracket (and thus paying a larger percentage of his or her dollar to the government) to focus primarily on limiting these types of income, and for those in lower brackets to go crazy with them, since they're not losing as much money.
Tax deferred retirement accounts, such as your IRA, 401k, or other retirement account, allow you to contribute a specific amount of money each year to your retirement. This amount is deductible from your income. That's not to say that these retirement accounts are tax free - far from it. These accounts are tax deferred, which means that you do pay taxes, though not until you take the money out. This offers the advantage of reinvesting your yields before taxes, which if done well can end up making you more money, but the fact remains that when you do access those accounts, the going tax rate may be less favorable than it is today.
Tax free investments do exist - to some extent. Municipal bonds and certain money market accounts can be tax free, however, you should always make sure that you deeply understand the taxing situation on these instruments before you actually put your money into them. In some, federal taxes or state taxes (or in some cases local income taxes) may be waived, but one doesn't imply the other, and the last thing you want is the surprise that you do owe taxes on a supposedly tax free investment.
If your portfolio has taken a little drive over the past year, you may find some solace in the fact that you can write off some of your losses. Up to $3,000 in fact. After three grand, you'll have to carry over your losses each year. This can result in a ton of paperwork, so make sure that the assessed tax difference will make up for the extra effort these filings would take.
Also make sure that you don't mix and match tax-beneficial instruments. You shouldn't put municipal bonds or tax free money market accounts in your IRA, for example. Since they're both tax free, you can end up losing out on the tax break the other provides. It's typically a better idea to use these instruments in conjunction with your regular assets. This is one of the points that I agree with the tax experts on. It just makes sense.
But I just don't agree with their investment strategy, as I mentioned before. It's all well and good to keep your taxes in mind when you're planning your investments out - and it's essential when planning for retirement - however, I just can't justify their methods. If you have had a good year financially, and find yourself in a higher tax bracket, chances are that you have a pretty nice retirement plan already. For someone making six figures, the ceiling on retirement contributions is just not enough money to be their primary focus of investment attention. If you know what you're doing, you will make money. I would much rather make money that taxed at 99% than not make a cent. It just doesn't make much sense to say that you wont invest outside your retirement account, just because you don't want it to be taxed.
Of course, if you're in a lower tax bracket, the experts recommend that you go ahead and invest in taxable securities, since your tax rate is less than, say, Bill Gates. I'm sorry, but this is ridiculous. It's pretty unnecessary for someone in a lower bracket to focus on taxable accounts alone. Actually, it's probably more important for you to pour money into your retirement accounts. With the battles going on in Washington over the "social security crisis" (which we'll touch upon next month), the best way to secure your future is to actively invest in it. If you're an active investor, splitting your investment allocated income fifty/fifty for your retirement and taxable investment accounts isn't out of line. If you don't invest very actively, and you don't think you'll need access to your retirement money, don't think twice about putting the majority of it in a tax deferred retirement account.
Essentially, my point is that your investment decisions shouldn't be held back in fear of your tax burden. If you can balance the two out, you might just find that it does make sense (and hopefully, you'll turn out more financially fit than you were before). A whole new tax year awaits, and we're ready for it.
Jonas Elmerraji is the founder and editor of growFolio, the world's first free online investment and business magazine. Issues are available online at http://www.growfolio.com
Warning: include(inc/ads-body.inc) [function.include]: failed to open stream: No such file or directory in /home/accounta/public_html/38187_business_personal_taxes.php on line 59
Warning: include(inc/ads-body.inc) [function.include]: failed to open stream: No such file or directory in /home/accounta/public_html/38187_business_personal_taxes.php on line 59
Warning: include() [function.include]: Failed opening 'inc/ads-body.inc' for inclusion (include_path='.:/usr/lib/php:/usr/local/lib/php') in /home/accounta/public_html/38187_business_personal_taxes.php on line 59
MORE RESOURCES:
 CBC.ca | 'Soda tax' movement gains steam Vancouver Sun New York state is the latest American jurisdiction eyeing a "soda tax" to curb the obesity ... Soda Tax: Is New York Soaking the Poor? |
 Chicago Press Release Services (press release) | Green Party gubernatorial candidate wants to legalize, tax pot Bloomington Pantagraph SPRINGFIELD -- Rich Whitney, Green Party candidate for governor, on Thursday laid out his state budget plans, which included raising income taxes, ... Choice between cuts or higher taxes has consequences for Illinois business ... Tax Increase Is Sought To Aid Illinois Schools Rich Whitney, Green Party Governor Candidate, Announces Budget Proposals |
 Telegraph.co.uk | Labour's tax pledge 'gaffe' draws Tory fire Financial Times Labour can meet its plan to halve the £178bn budget deficit by 2014 without any further tax rises, Liam Byrne, ... Liam Byrne: No new tax rises under Labour No new taxes or VAT rise in budget, says Treasury minister Liam Byrne Labour claims it can pay down deficit with no more tax rises |
The BC government sneaks another tax hike in through the back door Vancouver Sun -The BC Liberals rarely miss an opportunity to boast about the times they've cut taxes over the years. ... |
 Indiana's NewsCenter | Ind. House, Senate recess until Friday with jobless insurance tax, jobs ... CanadianBusiness.com The major sticking point appeared to be differences over a bill that would delay an unemployment insurance tax increase and provide tax breaks and ... Top Indiana lawmakers say Democrats, Republicans close to deals that could end ... Full Ind. House returns as session deadline nears; differences linger over ... |
Mississauga car dealer stung by tax fines Toronto Sun On top of the $183036 in back taxes and the $100000 fine, Revenue Canada says Gilani must also pay a $25000 surcharge to the Victims' Justice Fund. ... |
 National Post | Lower taxes for Toronto: Miller Toronto Sun (ALEX UROSEVIC, Toronto Sun file photo) He's using a surplus to balance the books and cut a planned property tax increase for 2010 to 2.9%. ... Toronto Mayor David Miller announces big surplus and lower tax increases Miller's media gambit Robert Silver |
 CBC.ca | NB to limit property tax increases: minister CBC.ca Finance Minister Greg Byrne says the government will introduce measures to limit property tax increases before the end of the legislative session. ... Property tax deferral is worth considering Property tax increases are hard on seniors |
Idaho Lawmaker: Bring a Bill to End Tax Exemptions New York Times By AP BOISE, Idaho (AP) -- Quit talking about repealing tax exemptions. Bring a bill to do it. That's the message Rep. Dennis Lake, the House Revenue and ... Kansas Legislature tables alcohol levy, but tobacco tax still alive House unanimous for HB 630, boosting tax credit for donations to IPTV, other ... Lawmakers more open to tax hikes |
 TopNews United States | Local affiliates here axed by Amazon.com The Colorado Statesman Senate Minority Leader Josh Penry, R-Grand Junction, said Monday that “when government raises taxes in a recession, it kills jobs. ... Colorado's feud with Amazon puts focus on national online tax efforts Opposing rising taxes Editorial: Make money talk in Amazon tax flap |
Insider Guides to IRS Audits!
Ever wish that, as a business owner, you knew exactly what would raise "red flags" at the IRS? Or how to make an IRS audit go as smoothly and painlessly as possible?If you're in the right type of business, you can get that information, directly from the IRS!Traditionally, IRS examiners have been responsible for auditing many types of businesses. An examiner might audit a grocery store one week and a construction company the next.
Early Distributions From Retirement Plans
An early distribution from an Individual Retirement Arrangement (IRA) or a qualified retirement plan need not be a "taxing" experience. Fortunately, there are exceptions to early distributions.
Alas! In E-Commerce Taxland
In trying to comply with tax laws for your e-business, you may find yourself falling down the rabbit-hole, going through the looking glass, and attending a Mad Tea-Party.Common sense, logic, and fairness never did apply fully to the field of taxation but this is especially true of e-commerce transactions.
Corporations Failing To Claim AMT Exemption Overpay Taxes By $11,000
Does your incorporated business pay alternative minimum tax ["AMT]? If so, there is a 93% chance you have been overpaying your taxes by an average of $11,000 a year according to the Treasury Inspector General.The Office of the Treasury Inspector General for Tax Administration was created in 1999 to oversee the IRS.
Identity Theft - Impacting Your Taxes?
If your identity is stolen, your finances can quickly become a nightmare. A less obvious problem is the effect identity theft can have on your taxes.
Organizing Your Taxes
Does this scene sound familiar? It's April 7. You haven't seen the top of your dining room table in two weeks because of the piles of paid bills, receipts, canceled checks, and unidentified cash register receipts covering it.
Six Urban Myths About Taxation
Six Urban Myths - Taxation"I am proud to be paying taxes? I could be just as proud for half the money." - Arthur Godfrey Temporary Taxation in Canada In 1917, the Income War Tax Act (7-8 George V, Chap.
Knock-Knock-Knock
Knock-Knock-KnockWho's there?The IRS!The next quarterly payment of estimated income tax for the self-employed is not far off. Network marketers who receive a form 1099 at the end of the year, and/or who are expected to owe $1,000 or more in taxes, must file a form 1040-ES Payment Voucher quarterly to avoid paying a penalty.
10 Tax Tips to Reduce Costs and Increase Income
No one likes paying tax. Everyone understands that tax is a necessary evil and that without it our government would not be able to afford our roads, health services, education, welfare system etc.
Getting A Second Extension to File 2004 Taxes
Millions of people file tax return extensions every year. The tax filing deadlines can rush up on your quickly.
What Is Tax Law?
The federal tax code is complex. This complexity generally arises from two factors: the use of the tax code for purposes other than raising revenue, and the feedback process of amending the code.
Tax Investigation - What You Need To Do
The knock on the door from a Tax Inspector is something that every taxpayer fears. Your immediate thoughts will be "Have I been honest with my tax returns or not".
The Internet Tax Man Cometh
Q: I was contacted by the city tax collector to say that my business is scheduled to be audited to see if I owe sales tax on items purchased on the Internet. Can they really make me pay sales tax on internet purchase? I thought you could buy things online tax free? -- Charlie B.
What the Tax Software Companies Dont Want You to Know
Haven't done your taxes yet? No problem. Now there is a new way you can use top tax software programs, like TurboTax and H&R Block, to get your taxes done quickly and easily.
Deducting Points On Home Refinances
Deduction of Refinance PointsAny points that you pay in the refinancing of your residence are tax deductible over the length of the loan in question. The deduction is allowable only if the residence is your primary home and the new mortgage replaces a previous one and/or is used to improve the residence.
How to Check the Status of Your Tax Refund Online
So, you were pleasantly surprised to learn that you are getting a refund on your taxes. Congratulations! The question for most taxpayers expecting a return is, "Where is my refund?"Check Your Refund Status OnlineThe easiest way to check on your refund is to ask the IRS through IRS.
About Income Taxes; Tidbits
1812The first attempt to impose an income tax on America occurred during the War of 1812. After more than two years of war, the federal government owed an unbelievable $100 million of debt.
To Tax or Not to Tax - This is the Question
To tax or not to tax - this question could have never been asked twenty years ago.Historically, income tax is a novel invention.
Tips and Simple Guidelines on How to Calculate Payroll Taxes
Managing a business small, medium or big requires you to pay your taxes, as well as your employees taxes. Managing a payroll can be an arduous and taxing job, no pun intended.
Business Tax Loophole: Leasing Assets To Your Corporation
While there are many equally valid reasons to incorporate, saving money on taxes is a consideration that can yield relatively immediate results. Leasing assets to your corporation is a tax strategy you should absolutely consider if you already have a corporation or are thinking about forming one.