Year End Tax Planning For Dividends And Capital Gains

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New York Stock Exchange, Stocks, Bonds, Dividends

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420x316-grad-lee Dee Lee
Dee Lee is a Certified Financial Planner who received a diploma in...
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BOSTON (CBS) – Dividends are a way a corporation shares its profits with its shareholders. Dividends will be taxed at 15% for this year but big changes are looming for January 1st. Dividends will be taxed as ordinary income in 2013. Could be as high as 39.6% if you are a high roller.

Dividend income eligible for the 15% tax treatment this year does not include dividends paid out on money market funds and Real Estate Investment Trusts (REITs). Those dividends are taxed as ordinary income.

Qualified dividend income are dividends paid on common stock and certain preferred stock. Your mutual fund could also pay out to you a distribution that would be considered a dividend because they hold dividend-paying stocks.

The capital gains tax rate is 15% for this year. The tax rate is 0% though if you are in the 15% tax bracket. To be eligible for the long-term capital gains tax you must have held the asset for at least one year. Hold it any less and it is taxed as ordinary income. And next year long term capital gains will be taxed at 20%.

So if you are rebalancing your portfolio and want to sell some holdings be sure you check the tax ramifications. Check in with your financial planner or tax preparer for more help in rebalancing.

Also, this may be a good time of year to be checking your mutual funds. Mutual funds must make annual payouts of interest, dividends and capital gains, and they do this usually toward the end of the year.

Call your mutual fund company to see when they will be making their distributions and find out what your tax liabilities are going to be.

If you are planning to buy mutual funds in the next couple of weeks, you want to buy them after they make their distributions so you are not buying a tax liability. If you purchase $10,000 of XYZ Mutual and it makes a distribution of 10%, you will owe taxes on $1,000.

If you own the mutual fund in your retirement plan you don’t need to worry about distributions for your profit is tax deferred until you begin to make withdrawals.

If you find you have made money in the market this year and will have a large tax bill review your portfolio and see if you can harvest any losses you have. You can sell those stocks to offset your gains.

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You can hear Dee Lee’s expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.

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