Tax Tips:

Hints for Investors

  • Do not give in to the temptation to treat commissions paid as investment expenses and claim it as an itemized deduction. Brokerage commissions can only be used to decrease your gain or increase your loss on the purchase and sale of stock. You receive your tax benefit from the commission expense when you add it to the actual purchase price of the stock when the stock is sold.
  • Investing in small business stock is a good idea. This is because if you realize a capital gain after holding the stock for more than five years, 50% of the gain may be excluded when you sell or exchange the stock.
  • Be careful when taking losses against your gains. You'll want to keep your long-term gains in tact by offsetting any losses against short-term gains when possible. This is because of the preferred tax rate that is applied to long-term gains as opposed to short-term ones.
  • For tax purposes, you use the trade date for gains and losses
  • Don't forget that when your capital losses exceed your capital gains, up to $3,000 of the unused losses can be deducted from your income on Schedule D.
  • Keep in mind that you may give away the long-term portion of your futures without recognizing the gain.
  • Consider transferring appreciated stock or other capital assets that you are thinking of selling to your child if he is over the age of 13. As long as the child's other taxable income does not exceed $25,750 for 1999, they can take advantage of the 10% tax rate for net capital gains.
  • Determine if you are a trader or an investor. Investors are allowed deductions for expenses as an itemized deduction subject to the 2% floor limit and the 3% phase out. Traders are not subject to these limitations. To qualify as a trader, you must carry out transactions for others, not just for yourself.
  • Make sure you consider your reinvested dividends as additional purchases of stock, at a different price. Many people make the mistake of not accounting for their cost basis for dividends they receive and have reinvested back into a mutual fund in the form of additional shares, therefore getting taxed twice.
  • If you are considering cashing out a direct investment plan within the next year, you may want to stop investing in it a year before you want to sell it. This way all of your gains may be considered long-term, your taxes will be lower and much easier to calculate.