Tax Preparation - Tax Tips For Investors
As the tax code grows by several encyclopedia volumes each year, more and more tax preparation services and software programs spring up all over the country.
Proper preparation is something to take very seriously, as the amount of money illegally saved by tax cheats is said to be dwarfed by the amount that law-abiding taxpayers overpay each year.
Who is to blame for this? Well for starters, the tax preparation professionals, who often fail to properly address their clients’ needs. But ultimately, losses due to excess taxation are the fault of the individual taxpayer.
Each and every American should be aware of tax code basics in order to ensure that they pay the least amount of taxes legally permissible. This is what preparation is all about!
Tax Preparation Tip - Know Your Tax Rates
Were you aware that not all income is taxed equally? Yes, the more you earn, the higher your tax rate, but this refers only to earned income at your job.
Most truly affluent people make the bulk of their money through capital gains, dividends, and interest. It’s important to know the differences between these rates for tax and investment planning purposes.
Buy, Sell, or Hold - Capital Gains and Tax Preparation
Long-term capital gains are taxed at a maximum rate of just 15 percent. This maximum rate applies only to people in the highest tax bracket (i.e. those most in need of preparation help). For people in lower tax brackets, the long-term capital gains tax rate can be as low as zero.
Short-term capital gains are taxed at the owner’s normal tax rate, however, they are not subject to FICA, the 7.65 percent killer that funds Social Security and Medicare.
Since long-term capital gains apply to securities (stocks, bonds, etc.) held for one year or longer, and short-term capital gains are charged for securities held for less than one year, tax preparation planning might be a factor in deciding whether to buy, sell, or hold. For example, you may want to hold a stock that you’ve owned for 11 months for just one month longer.
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