The Capital Gains Blog

Posts Tagged ‘gains’

Question: If you sell your business is it a capital gain/loss or is it treated as income for tax purposes?

Answer: The sale of a business is a highly complex transaction, involving the transfer of assets, inventory, goodwill, etc. Each has it’s own tax treatment so professional assistance is mandatory for all parties involved in the transfer. Most business transfers will involve both capital gains (or losses) as well as some component of ordinary gains (or losses).

Treasuries Find Greenspan’s Canary Fainting in Mine (Update2)

March 29 (Bloomberg) — Former Federal Reserve Chairman Alan Greenspan’s warning that rising yields on government debt will drive up American borrowing costs is resonating with the world’s biggest bond traders, who say this month’s losses in the market for U.S.

Question: How are Capital Gains treated in a Traditional IRA if one waits until age 59.5 (or later) to make withdrawls?

Imagine two people starting starting with 2,000 pre-tax dollars to invest at age twenty-five. The tax rate is a constant 25 %, and the capital gains rate is constantly 15 %.One person invests in the ROTH IRA (for 1,500 dollars because of the tax), and one invests in the Traditional IRA. If the annual rate of return for each investor is 8%, who does better in the end if retirement is age 70, exactly 45 years later?

Answer: That’s an interesting scenario. Using my retirement calculator, the traditional IRA would have the largest absolute value at retirement. But the annual payout would be the same either way. The specific amount varies depending on assumed life expectancy, but it stays the same for both IRAs.

Note that Capital Gains Tax is irrelevant. The Roth payout is tax free and the traditional payout is taxed at ordinary income rates.

Greenspan: Rising Treasury yields may signal interest-rate gains

Former Federal Reserve Chairman Alan Greenspan said the recent rise in Treasury yields represents a “canary in the mine” that may signal further gains in interest rates.

Budget 2010 predictions: Is there a future for pensions as we know them?

Question: Does short term gains on stocks sold count as earned or unearned income?

I know that interests and dividends are unearned income.

And I know that wages, salaries and tips are earned income.

But what about short term capital gains?

Answer: While they are taxed as ordinary income, they are not considered “earned income” so you can not use them for calculating the earned income credit or an IRA contribution.

Aussie Short-Term Notes to Slide as RBA Just Starting (Update1)

Australian shorter-term bonds will fall at a faster pace than longer-dated government debt as the central bank increases interest rates faster than the market’s “benign” expectations, ING Investment Management said.

What is really important?

Question: Capital Gains Tax on property when you move abroad?

If you’ve owned and lived soley in one house in the UK for several years, then move abroad on a work visa for a year (but are still a UK resident) renting (and living in) a property abroad… when you sell the UK property after a year of not living in it, is it subject to capital gains tax?

Answer: There would be no Capital Gains Tax Payable on the sale. The last 36 months of ownership of a property that has at some time been your principal private residence are always exempt from capital gains tax. So, you could rent it out for three years and not pay any capital gains tax.

You are also allowed other periods of absence in certain circumstances. For instance, if you have to go abroad because of your employment, that period of absence will be exempt from capital gains tax, no matter how long the period. However, you must actually live in the property afterwards in order to get the exemption.

If you have to live elsewhere in the UK because of your employment, the period can only be for a maximum of 4 years. Again, you must actually take up residence in the property afterwards to get the tax exemption.

Guinness Peat loss narrows as capital return eyed

Sir Ron Brierley’s Guinness Peat posts a second consecutive loss and may consider a capital return to shareholders.

Question: Frictions costs vs capital gains. Have the rules changed?

Hi all,

I’m a complete Noob to stock trading.

Bought my first stock, $50K of BCS at $5.30 3 weeks ago planning on a 1 year buy and hold strategy hoping for a 10-20% return.
It’s now $16.48 giving 270% in 3 weeks.

All the advice I’ve read says buy and hold gives better returns due to less frictional costs and lower Capital Gains Tax after a year.

How can I calculate the merits of selling quickly or holding for a year? I was looking for 10-20% return per year so seeing such a large change has made me wonder if the rules have changed and I should sell to lock in the profit?

Thanks,

Answer: Under normal circumstances you want do not want to have too many trades because you want to decrease friction costs.

Under normal circumstances you want to hold profitable positions for at least a year to take advantage of long-term Capital Gains Rates.

Those are still as true today as they were three weeks ago, three years ago, or three decades ago.

Getting a 270% return on a stock purchase in three weeks is not a normal circumstance. You will rarely, if ever, repeat that kind of performance on a stock purchase.

Here are a couple other general rules you should know.

Never put too many eggs in one basket. You should diversify your investments so you can not lose too much if one goes bad.

Low priced stocks are usually high-risk investments which can make big gains or big losses quickly. Consequently they should only be a relatively small portion of any portfolio.

Unless you have a large portfolio (around $1,000,000 or more) in investments other than stock it appears you violated one or both of those general rules/guidelines. Fortunately the stock went up and you have a handsome profit.

I am not an investment professional, and I do not follow BCS stock, so my advice is based on general principles and my experience in the markets. I recommend you sell at least half of the stock. It is true it will give you a significant tax hit, but paying taxes on profits is always better than watching the profits disappear if the stock goes back down.

When you originally bought the stock you decided to risk $50,000 on the company. You now have over $180,000 in assets at risk on the same company. If you sold all but 3,000 shares that would reduce your risk back down to about $50,000 and give you cash to invest elsewhere. (You should file estimated taxes and give Uncle Sam part of that profit.)

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Deciding when to sell is at least as hard as deciding when to buy. Here is one trick I use. I look at the stock as if I did not already own it and decide if I would want to buy it at the current price. If the answer to that question is no, it is time to sell the stock. If I would still want to buy it, but I have too many dollars at risk because the stock has gone up, I sell part of my position.

<<<... wonder if the rules have changed and I should sell to lock in the profit?>>>

The rules (guidelines) have not changed, but you need more than the two rules (guidelines) you mentioned to make good choices.

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I want to pass on one other resource to you. There is an excellent “Guide to Capital Gains And Losses” at

http://www.fairmark.com/capgain/index.htm

which should clarify tax issues on stock investments if you have questions. The statement in another answer that “Your capital gains is going to be 15% either way.” is wrong. Long term rates on capital gains are lower than short term rates.

BlueGold’s Jen Says China May Revalue Yuan By 5% (Update2)

Feb. 18 (Bloomberg) — China may let its currency appreciate by 5 percent as early as next month to prevent economic growth from stoking inflation, according to Stephen Jen of BlueGold Capital Management LLP.