Maximize Tax Benefits
The article, A Rich Harvest of Losses, in the latest issue of BusinessWeek (my favorite mag) -- Oct 31st, 2005 -- contains a lot of good advice on how to maximize your taxes (or how to pay the least amount of it). I'll take the most important excerpts.
You can gain money from this advice if you have stocks that lost in value since you bought them.
Find losses and squeeze some tax benefits from them. Short term losses are more valuable than long-term losses. Why? They can be used to offset short-term gains on which the tax rate can run as high as 35%, depending on your income.
But what if there are stocks you don't want to sell?
You can sell a company and buy it back 31 days later. But make sure you wait 31 days or you will be hit with a wash-sale rule, erasing your benefits.
There is another way, also explained in the article. If you still don't want to sell your stocks, you double up on them.
One way to douple up -- purchase a company shares equivalent to the number you want to unload -- and sell the older, higher priced shares after 31 days. You take a loss on the older shares, but establish a new position at a lower price.
Another way, swap your losers with similar companies, or buy an ETF that has a lot of stock in the company you own.
This is some good information from BusinessWeek. I could have used this info last year, when I had some gains.
Reference
A Rich Harves of Losses: BusinessWeek, October 21st, 2005
Alternative Minimum Tax (AMT) 2003: Impact of recent changes
* Expanding the amount of your income that can be taxed
* Taxing items that are tax-free under the regular tax system
* Disallowing many deductions
With the passing of the Jobs & Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), AMT exemption levels have been increased, reducing the number of taxpayers who are required to pay the AMT. Because lower tax rates mean your regular tax is more likely to be less than your AMT, the increased exemption amounts are particularly good news. The increased exemptions will protect taxpayers who otherwise would be subject to the AMT because of the lowered regular tax rates enacted by JGTRRA.
Exemption increases are:
This change is currently scheduled to be effective in 2003 and 2004.
[Excerpt from Quicken.com TurboTax Letter]
Tax Brackets
Some information about taxes, which I found-out about recently. I thought that if you are in a 25% tax-bracket and you make, let's say, $60K, you would pay $15,000 (25% * 60K) in taxes (oh, that seems a lot). Fortunately, it does not work that way: if you're married (similar if you're single, only the numbers change -- see below for your bracket), you pay 15% for the first $56,800 (bracket below 25%), and pay 25% on $3,200 (60K - 56,800); so that comes out to $9320 ($8520 + $800) -- still a lot but better than $15K!
Another, similar, misconception (I thought that way also) is the notion that your tax will suddenly increase by a huge amount when you move into a higher tax bracket. For example, if your taxable income is in the 15% bracket, but just a few dollars below the 27% bracket, you might be concerned that earning a few dollars more will cause you to pay a lot more in tax. Relax. The first $100 dollars you earn in the 27% bracket will cause your tax to increase by $27. You still pay only 15% on all the money you earned below the 27% bracket.
Here are current, 2003, tax brackets.
If you're single, see your tax bracket here.
See a whole article (where I got the information from) here.
