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Reduced Taxes With Tax Lot Accounting Methods, Part 2

January 27, 2011 by Jon

The new tax lot accounting rules for 2011 has changed the way we track taxes on stock sales. No longer will you be able to number crunch your way to lower taxes on your stock sales at year’s end. Instead you’ll need to calculate cost basis throughout the year. When you track your profits/losses, you can use the tax lot accounting method that gives you the best tax savings at the time of sale.

Tax Lot ID Refresher Course

Which accounting method you choose will depend on your capital gains tax (which we covered in part 1) and how many tax lots you have of a particular stock. Every time you buy a stock, whether it’s one share or 1,000 shares, that stock purchase is given a tax lot ID. You can have multiple tax lots in the same stock. Continue Reading…

Reduced Taxes With Tax Lot Accounting Methods, Part 1

January 20, 2011 by Jon

With the new tax lot accounting rules taking effect this year, getting more in depth with the tax lot accounting methods was necessary. In the past you could crunch the numbers at years end, to figure out the lowest possible taxes on your stock sales. As of January 1st, you’ll need to know how to calculate tax basis for each investment at the time of sale.

Throughout the year, keeping track of each stock sale (profit and loss) will be a requirement, in order to minimize your taxes at the end of the year. Online brokers are now required to keep track of your realized gains and losses throughout the year. You can use a simple spreadsheet to do the trick as well.

By tracking each stock sale throughout the year, you’ll be able to use the best tax lot accounting method to keep your taxes as low as possible. Remember though, that the type of tax you pay will depend on how long you have owned that stock. Continue Reading…

New Tax Accounting For Stocks In 2011

January 13, 2011 by Jon

If you own stocks or are thinking of owning stocks in 2011, you have new tax accounting methods available to you courtesy of the IRS. The good news is that the discount brokers will be responsible for keeping track of all your stock purchases and sales starting this year.

Brokerage firms already report the sales proceeds from stocks to the IRS. Now the brokerages will be required to report the purchase price, known as the cost basis, of all stock purchases. This also means you’ll need to know how to calculating cost basis for stock at the time of sale.

Your Tax Lot ID And You

Each time you purchase a stock, that position is given a tax lot id, even if you already own shares of the same stock. A tax lot simply is a record of a securities transaction and its tax implications, including the purchase date and number of shares.

If you purchased any new stocks this year, those purchases were given tax lot ids, allowing the IRS to track your exact profit or loss from that lot of stocks when you decide to sell them. Continue Reading…

Tax Cut Extension: What’s In It For You?

December 23, 2010 by Jon

Congress finally put off the inevitable last week and passed the tax cut extension we’ve all been waiting for since the beginning of the year. If you’re not sure how you benefit from the extension, we’ll break it down for you.

Tax Rates

With the signing of the tax cut extension, all income tax rates will remain the same for two more years. So we won’t see the possibility of rates going higher until after 2012. It’s not really a benefit over this year but if the tax cut extension hadn’t passed we would all be paying more taxes next year and beyond.

The tax rate on long-term capital gains and qualified dividends will also remain the same for the next two years. The tax rate for both will max out at 15% through 2012. If you’re in one of the two lowest tax brackets (10% or 15%) you will have a 0% capital gains rate. You have until the end of the year to rebalance your portfolio to take advantage of these tax rates for the year. Continue Reading…

What Is This Santa Claus Rally?

December 16, 2010 by Jon

The holidays are upon us once again and Wall Street is waiting to see if Santa will spread a little holiday cheer on the stock market at the end this year. Like the Christmas shopping season the term “Santa Claus Rally”, seems to be used earlier every year. Any slight change in the stock market from November to December and a race ensues to see who can use the “Santa Claus Rally” term first.

The media, as usual, tends to jump the gun on the Santa Claus Rally. The stock market has many seasonal market indicators. They tend to be very specific time periods and most are backed by significant historical data. Continue Reading…

Should You Convert Your Traditional IRA to a Roth IRA Before Year End?

December 9, 2010 by Jon

The 2010 Roth IRA conversion deadline is approaching quickly. If you haven’t heard, the previous income limit ($100,000) for converting a traditional IRA to a Roth IRA was lifted all the way back in January. With 2011 approaching, it’s always a good idea to check your finances and make any beneficial changes before the new tax year begins.

2010 Roth IRA Conversion Overview

Back in January a new rule allowed for anyone, regardless of income, to convert an existing traditional IRA or old 401(k) to a Roth IRA. Of course it’s not that simple. If you do decide to make the Roth IRA conversion, you have to pay taxes on the converted amount at your current income tax rate. For the 2010 year only, you can choose to make that full tax payment in 2010, or you can choose to split the income tax payment in 2011 and 2012. If you choose to split the tax payment between 2011 and 2012, half will be taxed at your 2011 income tax rate, half at your 2012 income tax rate. Continue Reading…