Author: Dr. Daniel Levine

Playing by the Rules and Saving Money with Accrued Interest on Bonds

  You’re Kidding Me! How would you like to limit your capital gains, and therefore limit your capital gains tax, as well as increase the basis of your bonds, which also decreases your capital gains tax?     Did You Know? When bonds are sold between interest payment dates, part of the cash you receive includes the interest that accrued up until the date of sale. In essence, the cash from your sold investment contains three elements: The principal Capital gains on the principal, if any Interest earned Here’s How You Do It If You Are the Seller: Have your accountant report your accrued interest as gross income. By doing this, you are removing the interest earned as only being capital gains. At the same time, you are increasing the bond’s basis which raises the floor on the bond, also limiting capital gains tax. Here’s how it looks in an example: A bond costing $5,000 is sold for $5,300 on May 31. The sale price includes $200 of interest the bond accrued from January 1 through May 31. Normally the $300 of increased value would be accounted as capital gains, but not this time. Have your accountant report interest income of $200, and capital gains income of $100. By dividing the earned interest and allocating the two portions as shown, you have limited your capital gains income and lowered...

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Keep Your Investment Vehicles Out of the Tax Man’s Garage

5 Mid-Year Tune-ups You Should Do Right Now Taxes clearly represent the proverbial two-edged sword: they pay for the necessary services our society requires such as good roads, hospitals, schools, etc.…but taxes also create limitations on lifestyle choices and the growth of investment portfolios. Reviewing tax strategies and selecting those which are applicable to your situation can meet your obligations while simultaneously preserving more of your wealth for your own personal and business needs. Planning for the inevitable now, at mid-year, can make a big difference at the end of fiscal 2016. Here are five strategies that may help increase your bottom line in a big way. Take a Close Look at Your Investments This year’s federal income tax rates on long-term capital gains and qualified dividends are 0%, 15%, and 20%. The maximum rate of 20% affects taxpayers with taxable income above $415,050 for single taxpayers, $466,950 for married joint-filing couples, and $441,000 for heads of households. Individuals with high income can also be subject to the 3.8% NITT (Net Investment Income Tax) which can result in a marginal long-term capital gains/qualified dividend tax rate that could reach as high as 23.8%. Though high, this is still substantially lower than the top regular tax rate of 39.6% (or 43.4% if the NITT applies). What can you do? A. Lower Your Taxes by Holding Your Securities Longer. If your...

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Investing with Chicken Little

There will always be people who prefer to look on the dark side of situations, believing the world is about to end. Chicken Little saw danger everywhere, each sign posing imminent destruction. Then there was Pollyanna who was excessively optimistic about everything, positive to a fault. This same attitude of deep concern or exuberant enthusiasm voiced by economists and analysts gets old after awhile when the promised debacle or economic paradise doesn’t materialize on schedule…or ever. The most recent example of gloom and doom in the markets has been the unimaginable horror of Britain’s exit from the European Union after 40 years of membership. Investors immediately responded with fear of the unknown, or with the expectation that the markets would fall…which they did…only to exceed their pre-Brexit performance levels a few days later. Before Brexit there was the crisis with Puerto Rico being unable to pay back its debts; before that there was the high price of a barrel of oil, jumping to about $140…though today it’s under $50. Before that there was the housing boom and bust, and before that there was… Each of these events was regarded by many as the End of Life as We Know It. You must remember that as odd as it may seem, the lure of lucre creates two primary emotions: fear and greed. Fear, because no one wants to lose their...

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Understanding Stock Market Indices

When watching the news on television or listening on the radio, there are often reports about the daily performance of the stock market. Usually the announcer is referring to either the Dow Jones Industrial Average or the S&P 500, and sometimes you might hear about the NASDAQ. These are just three of the many stock market indexes, or indices, that are active in the United States. There are also many stock market indexes in countries around the globe. What Is a Stock Market Index? A stock market index represents a particular segment of the stock market and measures, as an average, the performance of all the companies included in that index. Some indexes measure the performance of large companies known as large caps. Large caps are companies with large capitalization, meaning these companies have large financial resources. Some indexes measure the performance of mid-caps, and small caps. There are also indexes that measure market sectors, such as transportation stocks, utility stocks, and commodity stocks, to name a few. In fact, there are dozens of indexes, all designed to help investors understand whether an investment in a particular area of the stock market has the potential for making a profit. How Is a Stock Market Index Composed? The purpose of an index is to identify the trend of a market sector so that investors can determine if they should purchase...

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