SAVVY INVESTORS KNOW IT'S TIME TO GET THEIR DUCKS IN A ROW : WHAT SHOULD BE REPORTED?Byline: Deborah Adamson Daily News Staff Writer If you invested in the stock market last year, chances are you made some money. ``It's been a great bull market. Most people have net gains,'' said Meloni Hallock, a partner in the personal finance counseling group at Ernst & Young in Los Angeles Los Angeles (lôs ăn`jələs, lŏs, ăn`jəlēz'), city (1990 pop. 3,485,398), seat of Los Angeles co., S Calif.; inc. 1850. . But now it's time It's Time was a successful political campaign run by the Australian Labor Party (ALP) under Gough Whitlam at the 1972 election in Australia. Campaigning on the perceived need for change after 23 years of conservative (Liberal Party of Australia) government, Labor put forward a for you to hand over part of it to Uncle Sam Uncle Sam, name used to designate the U.S. government. The term arose in the War of 1812 and seems at first to have been used derisively by those opposed to the war. Possibly it was an expansion of the letters "U.S. . Where do you start? You probably have a dizzying array of 1099 forms, year-end summaries and tax forms. Even if you're paying a tax expert to sort it out for you, it's helpful to know what you're handing over to your hired professional. Here are answers to some tax questions an investor might ask. Any realized gain Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. or loss from every investment action in 1996. If you sold part or all of your mutual fund, as many people did when Fidelity Magellan stumbled last year because of its bond holdings, you need to report any dividends and capital gains or losses capital gains or losses n. particularly when calculating the tax liability of an individual or business, this is the difference between the original cost plus the cost of capital improvements, excluding maintenance, called "basis" and the sales price. . If you sold individual stocks, any gain or loss has to be reported to be spoken of; to be mentioned, whether favorably or unfavorably. See also: Report as well. Interest earned from bonds is taxable, unless they are tax-free. Treasury bills are federally taxable, but not by the state. Municipal bonds are exempt from federal taxes and may be exempt from taxes of certain states. For example, if you have a California bond you won't have to pay federal or state taxes. But that might not be the case if you hold another state's bond. Interest from money-market funds, savings accounts, certificates of deposit and the like are taxable unless they are wrapped in tax-exempt vehicles such as Individual Retirement Accounts, otherwise known as IRAs. Likewise, if you're trading stocks through an IRA Ira, in the Bible Ira (ī`rə), in the Bible. 1 Chief officer of David. 2, 3 Two of David's guard. IRA, abbreviation IRA. , you don't have to pay taxes on it. How do I calculate my capital gain or loss? Capital gain or loss is the difference between how much you paid for a security and how much you received on the sale. Let's say you put $1,000 in ABC ABC in full American Broadcasting Co. Major U.S. television network. It began when the expanding national radio network NBC split into the separate Red and Blue networks in 1928. fund to buy 100 shares at $10 each. You sold at $1,500. If you did not reinvest any dividends or receive any capital gains, your taxable gain Taxable Gain The portion of a sale that is liable to taxation. Notes: When redistributing mutual fund shares that have increased in value, returns may be subject to taxation. See also: Capital gain, Income Tax is $500 - your cost basis is $1,000 and your redemption amount is $1,500. If ABC fund distributed $25 in dividends to you last year, you have to pay taxes on it separately. If you reinvested your dividends, that becomes part of your cost basis. The same method applies in the sale of individual stocks. In mutual funds, depending on which shares you sell, you could lower or raise your capital gain or loss. For instance, if you choose to sell the most expensive shares first, your gain would be minimized or you would have an actual loss. One important note about capital losses: There's a limit to the amount you can claim - a net of $3,000 a year. What can I do to lower my capital-gains taxes now? Make sure to include all your expenses in calculating the cost basis - reinvested dividends, sales load Sales load See: Sales charge sales load See load. , redemption fees, brokerage fees and the like. Make sure you take all the deductions you're allowed. If you haven't done so, fund your IRA if you qualify for the deduction. You have until April 15 in general to open an account. What can I do to lower my capital gains for next year? You could sell losing investments before the end of the year to offset capital gains, said Laura Vahl, a certified public accountant Certified Public Accountant (CPA) An accountant who has met certain standards, including experience, age, and licensing, and passed exams in a particular state. in Beverly Hills. If your income-tax rate is higher than 28 percent, consider holding on to your investments for more than one year. Give away stock to a charity, Hallock said. If you regularly give to nonprofits, consider giving securities that have appreciated in value. That way, you don't have to pay taxes on your capital gain. Buy mutual fund shares after the distribution date. Most funds distribute dividends for the year in November and December. If you buy shares right before the distribution, you will be taxed on a year's worth of capital gains even though you've only held the shares for a short time and did not participate in any gains during the year. Invest in funds with lower turnover ratios, which is a measure of how often the fund buys and sells its holdings. The more often this goes on, the higher your tax burden will be. Index funds tend to have lower turnover ratios. |
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