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2006 Tax
information update
A
Quick Refresher on
Investment Capital Gains and Losses
If
you sell a security in a taxable account for more than it's basis
(what you paid for it), you have a capital gain; when sold for
less than it's basis, it's a capital loss.
Taxpayer
obligations regarding capital gains and losses depend on how long
the investment is held: ownership for one year or less makes it
a short-term investment and taxes are payable at the investor's
ordinary income tax rate. If held for more than one year, it is
considered a long-term investment and taxes are owed at either
15 or 5 percent, depending on your tax bracket. Until the end
of 2010, investors in the 25 percent or higher marginal tax bracket
will be taxed at a 15 percent long-term capital gains tax rate
while those in a 15 percent or lower tax bracket are taxed a 5
percent for years 2006 and 2007. From 2008 - 2010, the tax rate
will be zero for those in the 15 percent or lower bracket.
If
you have a loss in one investment and a gain in another, the loss
may cancel out the gain. Besides that, the IRS also lets capital
losses in excess of capital gains be deducted from ordinary income
up to $3,000 each year ($1,500 married filing separately) while
the remaining loss may be subtracted from income in future years.
Therefore,
depending on your tax bracket, subtracting a capital loss from
ordinary income could save you more tax than offsetting a capital
gain. It could be more beneficial to take a capital loss in years
when you have little or no long-term capital gains so you can
subtract the loss from ordinary income.
Depending
on how much you earn, this technique might also reduce your marginal
tax bracket rate.
Always
utilize professional tax advice.
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