The first step towards minimizing your taxes is to be conscious
of what creates a taxable event. If the benefits from your transaction
outweigh the tax consequences, you may not always choose to act
in a way that minimizes taxes. In some cases, you may decide the
tax consequences are significant enough to delay making a certain
transaction or deter you from making it at all. You should also
consider consulting a tax professional.
The following chart list some of the most common investment events and
associated taxes for previous years. Please consult with your tax advisor to
determine the affects on your accounts for the current year.
| Investment Activity |
Taxable Event |
Impact |
| Selling a security held for less than 12
months for a profit. |
Short-term capital gain. |
Gain subject to ordinary income tax. |
| Selling a security held more than 12 months
for a profit. |
Long-term capital gain. |
Gain subject to 20% tax; 10% for investors
in 15% tax bracket. |
| Your security pays a dividend. |
You receive a cash dividend or have it automatically
invested back into the security. |
Distribution is subject to ordinary income
tax rate. |
| Your mutual fund makes a capital gain distribution. |
Long-term capital gain. |
Gain subject to 20% tax; 10% for investors
in 15% tax bracket. |
| Withdrawing money from a retirement account
other than a Roth IRA. |
Distribution after age 59½ . |
Distribution is subject to ordinary income
tax rate.
Important: If you withdraw money from
your account prior to reaching age 591/2, you may incur a 10%
early withdrawal penalty from the Internal Revenue Service. |
| Withdrawing money from a Roth IRA. |
None, as long as you are at least 59 ½
years old and have owned the account for at least 5 years. |
Earnings are tax-free
Important: If you withdraw money from
your account prior to reaching age 591/2 or prior to owning
the account 5 years you may incur a 10% early withdrawal penalty
from the Internal Revenue Service. |
| Transferring your retirement account to an
Individual Retirement Account when you change jobs. |
None, as long as the proceeds of the retirement
account are moved to an Individual Retirement Account right
away. |
No tax impact
Important: You must roll your proceeds
into a new retirement account or you will owe early withdrawal
penalties and taxes. |
| Moving your investment holdings to a new
brokerage account. |
None. |
No tax impact. |
| High 12-month turnover ratio within a mutual
fund. |
Short-term capital gain. |
Gain subject to ordinary income tax. |
| Selling a tax-exempt bond before maturity. |
Long or short-term capital gain, subject
to time held. |
Subject to capital gains taxes; income exempt
from state and/or federal income taxes. |
