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:
n 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.
n 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 re-acquire
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 percent for taxpayers in the
39.6 percent ordinary income bracket. Taxpayers in the two lowest ordinary income rates (10 percent and 15 percent) will have a 0 percent rate on capital gains and dividends. Those in all other brackets will continue to have a 15 percent 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.
Barry Gilchrist is a certified public accountant at Wessel & Co. of Johnstown.