TERRY BIRRELL
CERTIFIED PUBLIC ACCOUNTANT
N
Tax planning for investments in stocks and bonds -
The following rules apply for most capital assets in 2008:
Capital gains on property held one year or less are taxed at an individual's ordinary income tax rate.
Capital gains on property held for more than one year are taxed at a maximum rate of 15% (0% if an individual is in the 10% or 15% marginal tax bracket-reduced from 5% in 2007).
Timing of Sales: You may want to time the sale of assets so as to have offsetting capital losses and gains. Capital losses may be fully deducted against capital gains and also may offset up to $3,000 of ordinary income ($1,500 for married filing separately).
In general, when you take losses, you must first match your long-term losses against your long-term gains, and short-term losses against short-term gains. If there are any remaining losses, you may use them to offset any remaining long-term or short-term gains, or up to $3,000 (or $1,500) of ordinary income. When and whether to recognize such losses should be analyzed in light of the changes in the capital gains rates applicable to your specific investments.
Wash sale rule: The sale and purchase of substantially identical stock or security within 30 days (before or after) the sale is defined as a wash sale. Unless the dealer exception applies, a taxpayer may not deduct losses from a wash sale; however, the basis of the newly acquired stock or security is increased so that the loss is recognized on the ultimate sale. The holding period of the stock or security disposed of also increases (or “tacks on”) to the holding period of the new stock or security. Gains realized from a wash sale are always recognized immediately and may not be deferred.
Identifying stock or securities sold: If you have been accumulating a position in a stock over a number of years, then the sale may generate significantly different tax results depending which shares are considered to have been sold. Generally, the stock certificates that are delivered to the buyer will identify the position sold. Where circumstances make it impossible to accurately identify the shares sold, the general rule is that the first acquired shares are treated as the first sold (FIFO).
Dividends: Qualifying dividends received in 2008 are subject to rates similar to the capital gains rates. Therefore, qualifying dividends are taxed at a maximum rate of 15%. Qualifying dividends includes dividends received from domestic and certain foreign corporations.
Year-end planner: If you would like to receive a complimentary copy of my year-end income tax planning letter for 2008 which covers a variety of additional issues (it is 10 pages), please go to Contact to request that it be e-mailed to you.
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Copyright 2008.Terry L. Birrell. All rights reserved.