Saturday, December 18, 2004

Frugal -Debt reduction, budget living, frugal living, personal finance, crafts, cooking, recipe.

Frugal -Debt reduction, budget living, frugal living, personal finance, crafts, cooking, recipe.

There are plenty of this kind of sites on the Web. I am not a do-all-by-yourself guy, but maybe it could be of interest to some of my readers.


Thursday, December 16, 2004

Successful investing starts with saving

Friday, December 10, 2004

Stocks : when to sell

I will not talk about market timing. Knowing when to buy or to sell according to market conditions in order to increase your return is a risky, speculative play. Actually, I’m talking about the timing to sell from a tax perspective.

When you sell losers, you are eligible to a tax deduction for capital loss. On the other hand, when you sell gainers, you will have to declare a capital gain. See: Capital Gain and Losses for more information about capital gains and losses.

If your gain (or loss) is realized before January 1st 2005, you’ll have to declare it in this year tax filing. A general rule (but not always applicable, it depends upon other factors) to consider is: defer your gains the later you can and realize your losses the sooner.

Suppose that as of today, I have some stocks I want to get rid of. I own for $5000 of Intel shares that lost $1000 since its acquisition and $5000 of Google shares that gained $2000 since acquisition. Let us suppose also that I have other realized capital gains this year that sum to $2500. Suppose also a 20% tax rate on capital gains.

Scenario 1: I sell both my Google and Intel shares now. Result: I declare a net capital gain of $3500 and I’ll pay $700 in taxes when I will file my tax form during spring 2005.

Scenario 2: I sell both my Google and Intel shares in January 2005. Result: I file a $2500 capital gain in my 2004 tax return; I will pay $500 taxes in spring 2005. The next year, I will declare another $1000 gain; I will pay $200 taxes in spring 2006.

Scenario 3: I sell Intel today, I sell Google in January. I will file $1500 capital gain in 2004 (taxes = $300) and a $2000 gain in 2005 (taxes = $400).

In all three scenarios, you will pay the same tax amount ($700). The difference is that in scenario 3, you will defer a tax payment of $400 for a full year. Then you can put this money in a certificate of deposit. In this example, you will not save much, but in the long term, this could make a difference.

Exceptions and notes:

  • Don’t defer is you think your personal tax rate will be higher next year (for instance, you just got a new, better paid job)
  • You gain nothing doing by deferring gains if you have unused capital losses (if you already have more cumulated capital losses than capital gains). While the government always charges you for capital gains, losses can only be used to reduce gains, so cumulating losses brings is not advantageous [Note: in the US, you can deduct capital losses up to the full amount of your capital gain plus $3,000].
  • At least in Canada, you can use the current year’s losses to reduce previous years’ gains, up to 5 years back (and get a tax refund)
  • If your stocks are in a 401k, IRA or RRSP, capital gains and losses have no effect on your tax filing. The gains will be taxable as general income when you will start withdrawing money at retirement time [Note: except for Roth IRA in which you pay no tax at all on earnings].
  • If you are not sure of what you are doing, consult an expert, particularly if large sums are in play. Particularly, do that only if you were planning to get rid of the stocks anyway.
  • Verify with the rules in your state/country/province to know the date limit to realize losses for this year if you plan to sell losers.

Tuesday, December 07, 2004

4 ways to simplify your life and save