This is
a good time of year to review your investments. If you’re not meeting your
financial goals for the year, there’s still time to make changes. Make sure
your portfolio is appropriately balanced among stocks, bonds, and other
investments. Keep it well diversified, without too much at risk in any one
sector. And you’ll want to weed out investments with poor future prospects.
As you
identify investments to buy and sell, keep the following tax implications in
mind:
· When you sell assets,
you’ll have a capital gain or loss. Remember that capital gains on assets held
for more than 12 months enjoy lower tax rates. For shorter holding periods,
you’ll pay tax at ordinary income rates.
· Don’t forget to include
any reinvested dividends when you calculate your cost basis for mutual fund
shares.
· You can use capital
losses to offset capital gains. Excess capital losses can even offset a limited
amount of ordinary income.
· Watch out for the “wash
sale rule.” If you sell stock and then reacquire substantially identical
securities within 30 days of a sale, you can’t deduct a loss from the sale.
· The law passed in
January of this year sets the tax rate on long-term capital gains and qualified
dividends at 20% for taxpayers in the 39.6% ordinary income bracket. Taxpayers
in the two lowest ordinary income rates (10% and 15%) will have a 0% rate on
capital gains and dividends. Those in all other brackets will continue to have
a 15% rate on dividends and long-term capital gains.
· Changing investments
within a tax-sheltered retirement account doesn’t have any immediate tax
consequences. You’ll pay tax at ordinary income rates when you take
distributions.
Remember,
taxes shouldn’t drive your investment decisions, but they are an important
factor to consider. If you need assistance, give us a call.
