Investing
is something that every taxpayer should do. If you’re just now getting started
with investing, it is an exciting and beneficial journey. However, it can also
be tricky, especially when it comes to taxes, so it’s a good idea to have an
accountant and/or investment adviser to help you through the process.
In
the meantime, though, here’s some solid advice to keep in mind.
Keep
Detailed Records
First
things first, you’ll want to keep detailed records of every transaction related
to your investing.
Keep
track of what you’ve bought, when, how many shares, the cost basis, commission,
and anything else. You’ll need a lot of this information when it comes tax
time.
Plus,
having good records can also help you to ensure you’re making smart investments
by keeping track of your gains and losses. It’s good for staying organized too.
Understand
the Different Types of Gains
Something
else to understand is that there are two types of gains in terms of taxation.
There are short term capital gains and long term capital gains.
Basically,
when you sell a gain after having it for less than a year, you pay the short
term capital gains tax rate. You pay the long-term rate if you’ve held the gain
for over a year.
The
short term capital gains rate is based on your income and the tax bracket you
fall into. The long term capital gains rate, on the other hand, is lower than
ordinary income rates and is not tied to your income bracket.
Thus,
holding onto your investments can often be beneficial in terms of taxation.
Don’t
Forget to Pay Your Net Investment Income Tax
One
final thing to know is that there’s a net investment income tax you may have to
pay. This tax applies to single or head of household individuals who make over
$200,000 or married filing jointly couples making over$250,000. If you are
required to pay it, make sure that you do in order to avoid penalties.
These
are just some basic tips that can prove helpful. For even more help and advice,
however, be sure to turn to a professional.