Posts Tagged 2009
How To Escape Capital Gains Tax
Taxpayers are usually terrified of the word “capital gains.” You can define capital gains as the profits you gain from the sale of an asset. As per capital gains tax law, you have to pay taxes on the profits you make when you sell an asset. You can make a capital gain on assets such as land, stocks, or bonds. On the other hand, if you made a loss on a piece of property, it is considered to be a capital loss for which you get a tax deduction.
A clause in the capital gains tax law permits you to avoid paying capital gains tax even if you make a huge profit while selling an asset. Real estate in one area in which you can dodge capital gains tax. Real estate is known to be a very profitable venture; its price never goes down as long as you own it. The good news is that IRS has enabled tax payers, who invest in real estate, to avoid paying taxes on the profits they make on it.
How Can You Take Advantage of the 0% Capital Gains Rate?
The capital gains rate for certain taxpayers will drop to 0% for tax years 2008 through 2010. How can you take advantage of this 0% capital gains rate?
First, let’s review the capital gains rate in general.
Gains from sales of personal investments held for more than 12 months generally are taxed at the capital gains rate which is 5% or 15%. The 5% capital gains rate is available only to those whose ordinary income is taxed at 15% or less. The 15% capital gains rate will remain effective through 12/31/10 (barring any changes to the law prior to that time). The 5% capital gains rate will continue through 12/31/07; then the rate drops to 0% for tax years 2008 through 2010.
The 15% income tax brackets will be higher in 2008 as the IRS makes its annual adjustment for inflation, which will be announced later this year. However, to get an idea of who may qualify for the 15% and under brackets, currently in 2007 a married couple filing jointly must have taxable income (which remember is all of the taxpayer’s income less their itemized deductions) of no more than $61,300; and for a taxpayer with a filing status as single, the cutoff is $30,650.
Watch Out for Covert Capital Gains!
Hey all you smart mutual fund investors, listen up! Check your accounts on line now, or call your broker or investment company,to see if your fund issued any capital gains this month. That’s right, even though your fund’s value probably took a nose dive, there very well may have been trading in that fund throughout the year that could have resulted in a capital gain. Mutual funds distribute the bulk of such gains during December to their shareholders, so you COULD owe income tax on capital gains even though your fund is sporting a big fat loss, or even a mild-paunchy loss…
You see, when a lot of novice or nervous investors call 1-800-REDEEM (that’s a joke, not a real number to my knowledge) fund managers have to raise enough capital by 4pm EST each day of trading to satisfy all the redemptions. Well, quite a few savers sold out of mutual funds when the markets started declining. (Generally it’s savers, not investors, that panic and sell prematurely incidentally.) So, quite a few mutual fund managers had to juggle their portfolios, invariably selling out securities that had built-in capital gains. Yes, I know, a distant memory…over 6 months ago, even…but I digress.
What Is True Wealth?
<b>The dictionary defines wealth as:</b>
1. [n] – the state of being rich and affluent
2. [n] – an abundance of material possessions and resources
3. [n] – property that has economic utility: a monetary value or an exchange value
4. [n] – the quality of profuse abundance
None of those definitions sound too bad, right? The quality of <b>profuse abundance -</b> I like that definition!