Stock Markets Exposed
Stock Investing and Taxes at the end of the year.?
This is the first year I started buying a bit of stocks. I now don't know how this will play on my tax forms. Is investing generally a good thing for TAXES (Gov't might appreciate this?) What will change now? Thank you.
Public Comments
- Need more info for a specific answer. Generally, investing can cause income taxes for 2 reasons. Dividends paid by the company and capital gains. Capital gains means you sold the stock for a higher price than you paid for it, i.e. you made a profit. If you owned the stock for more than 1 year, it is "long-term". That is better than "short term" because you pay a lower tax rate. Dividends are also usually at a lower tax rate. At the end of the year you will get statements from your broker with amounts you have to put on your tax return. They are called 1099 forms. Keep in mind that your broker also sent the same forms to the IRS, so don't try to not report the amounts. By the way, it is possible to LOSE money on a stock purchase (buy hi, sell lo). If you lose money, you can combine it with any money you made to help reduce your tax.
- Unless you receive dividends, your taxes aren't affected until you sell the stocks. Investments are usually taxed less than ordinary income and you may qualify for a tax credit if you invested in a retirement account
- It doesnt affect (get reported on) your taxes until you sell or if the stock become worthless. Govt doesnt care what you invest in as long as it legal.
- it is good for you to invest in stocks, but it depends on your salary level to make exact calculations base on your tax level. Anyway, profits made from stocks will be seen as capital gains and will therefore be limited to capital gains tax rates of less than 20% vs. your probably 35% tax rate. Also, some losses can be deducted. But be careful not to buy too many stocks in the fourth quarter and selling them short. That way you will be inellgible for some deductions, etc. Ask your tax advisor and if you don't have one buy a tax accounting book Principles of Taxation for Business and Investment Planning, 2005 Ed., Jones
