Tax Tip of the Week
October 9, 2006

Make sure your portfolio is appropriately balanced among stocks, bonds, and other investments. Keep it well diversified, without too much at risk in any one sector. And you’ll want to weed out investments with poor future prospects.

As you identify investments to buy and sell, keep these tax implications in mind:

• When you sell assets, you’ll have a capital gain or loss. Remember that capital gains on assets held for more than 12 months enjoy lower tax rates. For shorter holding periods, you’ll pay tax at ordinary income rates.
• Don’t forget to add back any reinvested dividends when you calculate your cost basis for mutual fund shares.
• You can use capital losses to offset capital gains. Excess capital losses can even offset a limited amount of ordinary income.
• Not all dividends on stocks and mutual funds are taxed at the same rate. “Qualified” dividends paid by most U.S. and some foreign companies enjoy lower rates of 5% or 15%, depending on your tax bracket.
• Interest payments on corporate and U.S. bonds are generally taxed as ordinary income.
• Income on most state and municipal bonds is usually tax-free. The financial benefit of owning tax-free bonds depends on your tax bracket, among other factors.
• Changing investments within a tax-sheltered retirement account doesn’t have any immediate tax consequences. You’ll pay tax at ordinary income rates when you take distributions.

Remember, taxes shouldn’t drive your investment decisions, but they are an important factor to consider. For guidance with the tax issues in your investment review, give us a call.

Questions for our Financial Expert?
E-Mail us at: finance@ClevelandSeniors.Com