Prosper Newsletter: January 2008 > Stock
You understand that the following information is educational in nature and is not intended to be legal, accounting, or tax advice. You are responsible for your own financial decisions and should consult your own legal, accounting, and tax advisors before making your financial decisions.
Tax Strategies for Stock Investing
Investing in the stock market can be a wise financial decision; however, it requires careful planning and educated strategies. For example, many novice investors simply do not plan well enough for the taxes they must pay for gains in their investments. Careful planning and established strategies for paying taxes could save you a great deal of time and money. Understanding the available options for paying taxes on your gains or receiving tax credit for your investment losses can help you make an informed decision tailored for the best interests of your finances and investments in the coming year.
When you begin investing, you have the option of choosing taxable or tax-deferred accounts. Placing your money into a taxable account means that these funds are taxed normally. Placing your money into a tax-deferred account means that you postpone paying taxes that you owe on any money in this account, whether from gains or from contributions. Long-term gains in your taxable accounts are usually taxed at a much lower rate than any funds that you hold in a tax-deferred account.
There are other types of investments that you can use without having to establish a business entity for tax-free income. Investing in these types of ventures can help you create wealth without the burden of taxation. Some types of tax-free bonds, such as municipal bonds, allow you to exclude the interest earned from your gross income. When you invest in these types of bonds, you are essentially loaning the government your money in exchange for interest gained on this money and a tax exemption status. Savings bonds are another way to get tax-free income (provided the purchaser meets the criteria set by the government). The criteria set for tax-free redemption of bond investments can vary from individual to individual. Consult the terms of your specific bond to see if you qualify for tax exemption status.
There are two major ways that stock market gains can be taxed. Understanding these types of taxes can help you make informed decisions that can eventually save you money and trouble. You can be taxed on your earnings through a capital gains tax or through a dividend income tax. Capital gains result from selling any type of asset for a profit. Capital gains are taxed in stocks on the difference between the sales price and the original investment cost. Capital gains can be long-term or short-term. Capital gains taxes are paid on the income accrued from these types of gains. A dividend tax is simply a tax paid on money gained from company dividends. Understanding the difference between these two types of taxes can help you create investment strategies that minimize your tax liability and maximize your profit.
Note: Consult a tax advisor if needed as you set your investing goals for the coming year. Make sure your New Year's resolutions include proper tax planning.
$3,000 in 3 Weeks!!!
My coach taught me the covered call strategy. He showed me a website where I could find great stocks to trade. Using this website, I purchased stock in eight companies. Then I used the strategy and made over $3,000 in three weeks. I will continue to use this website and strategy to build my account.
Thank you, Prosper.
Bob S.
Look Ahead
We have reached the end of another bullish year in the stock market. All the major indexes finished positive for 2007. Some of the top stocks for 2007 were AAPL, POT, DRYS, RIMM, TBSI, GRMN, SPWR, FSLR, MOS; some of these stocks rose dramatically during the year but have lost steam towards the end.
Some of the best put plays of 2007 have been CFC, C, KBH, RYL, TMA, CTX, ETFC, MER, TOL, and basically any stock that was involved in sub-prime loans or home builders. While it is too late to trade these stocks on the downside, keep a close eye for a bounce sometime in 2008.
It will be an interesting year in the stock market. With the presidential election coming, this may be a year of unpredictability. A typical election year is one where the market remains stable and somewhat flat until a clear winner is announced. Depending upon the new president's policies on big business and the economy, the market will respond in either a positive or a negative way. Be prepared to react to what the market gives you. It is also the fifth year of one of the strongest bull rallies in history.
A new year also allows you to set new goals and make resolutions. This year we want all of our stock students to not set goals. Instead of setting goals, make yourself a promise. Promise yourself that you will accomplish certain things this year. A few things to consider might be a dollar amount or a percentage that you want to receive from your investments, a daily schedule or routine you will follow, following your trading rules religiously, making exit strategies before you enter trades, and any others you feel would be good for you. Most importantly, KEEP YOUR PROMISES! Happy New Year and happy trading!
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