Ways to Save Money

In these hard times, money is hard to come by so you should know how to save it until things get better. Since it is a balancing act that is somewhat challenging, here are a few ways that can teach you how to save money. If you don’t want to lose your home like a lot of Americans have over the past year, you have to kill your debt first. You do that by calculating how much money you spend in a month and then see where the budgets can be made so there is money you can use to pay ...

Five Practical Ways to Save Money for Students

It can be hard to think of ways to save money especially for students since they don’t have their own money yet. This is because at times, for all the expenses while on campus, there is barely left to save. Although it is hard, it doesn’t mean that it is impossible for students to save money while studying. All they need is to develop good time management skills, strict budgeting, and practicality. If you are one of those who are thinking of ways to save money while on campus or even before you enter one, here are some of the ...

Six Simple Ways to Save Money

No matter where you look at it, there will be always ways to save money if the person has the will do so. If you are one of those who are trying to come up with ways to save money in this unstable economy, it is best to start with developing a simple lifestyle. When you are able to do this, the rest will follow. But, if you are one of those who are not sure where to start, here are some eight simple ways to save money. 1. Cut down on grocery or shopping sprees. Although buying groceries is a ...

Save Money Without Feeling Poor

Yes. You are feeling the economic crunch. Times are hard and you are finding it hard to even make both ends meet with the rising costs of basic necessities and the fact that you lost one of the part-time jobs that you are holding. This is the common scenario that people, not only in the US, is feeling. They may not have lost their jobs but they have certainly found it hard to earn extra. Can you blame them then if they look for ways to cut costs and save money? Although it looks like a pretty daunting task, it’s not ...

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Knowing The Rules Will Save You Money-The Truth About Capital Gains and Losses

The average American taxpayer lets the chips fall where they may when it comes to reporting capital gains and losses on their tax returns. So that we all understand, let's review the rules for capital gain and loss netting. Capital gains and losses are divided into two types; long-term and short-term. A long-term transaction is one that involves the holding of a given asset for more than one year. Conversely, a short-term transaction involves the holding a given asset for less than one year. The importance of the holding periods relates to the rate of income tax to be paid on the transaction. Under current law, long-term capital gains are taxed at a maximum rate of 15%. Short-term gains are taxed at the maximum incremental rate of the taxpayer. This rate could be as high as 35%. Long-term capital gains and losses net against each other as do short-term capital gains and losses. To the extent that losses exceed gains, the capital losses will offset other forms of income up to $3,000 with the balance being carried forward indefinitely. The capital loss carry forward will maintain its respective classification as either long-term or short-term.

The tax planning opportunities for recognizing capital gains and losses are a plenty believe it or not. First of all, it is important to point out that the amount of the gain or loss to be recognized can be controlled. There are two ways to recognize capital transactions. The first in first out method (FIFO) assumes that the first or oldest asset acquisition is being sold. The FIFO method is the default method for recognizing gains and losses if the specific identification method is not used. The specific identification method allows the taxpayer to identify which asset (or block of shares) is being sold. For example, the taxpayer owns two blocks of IBM shares as follows:

September 1, 1990 1,000 shares at $30 $30,000

September 1, 2004 1,000 shares at $50 $50,000

On November 1, 2006, the taxpayer wants money to pay bills and pay college tuition. On this day, the price of IBM shares is $45 per share. Let's assume that the taxpayer does not have any capital loss carry forwards. To avoid paying long-term capital gains tax of $2,250 (15%x$15,000), the taxpayer notifies his broker in writing that he wishes to sell the September 2004 block of shares. This would create a long-term capital loss of $5,000 ($45,000 selling price less $50,000 acquisition cost). If there are no other capital transactions for the year, the taxpayer will get a $3,000 capital loss deduction against other income. Assume a 35% tax rate and this taxpayer gets a $1,050 tax savings in 2006. By knowing the specific identification rules exist, the swing in tax savings is $3,300 ($1,050+$2,250). The remaining balance of capital loss is $2,000 ($5,000 less $3,000 recognized) and is carried forward as a long-term capital loss indefinitely.

Another key tax planning tactic involves the timing in netting capital gains and losses. Let's assume that a taxpayer has the following transactions during the year:

Long-term capital loss carry forward of $20,000

Short-term capital gain on stock transactions, $20,000

Long-term capital gain on sale of land, $20,000

Taxpayer is in the top tax bracket of 35%

In this example, the long-term capital gain must first be netted with the long-term capital loss. This will eliminate the 15% tax on the long-term capital gain of $20,000. The tax due on capital transactions in the current year will be $7,000 ($20,000 x 35%). What could this taxpayer have done differently? Suppose he could have gotten a contract to sell the land in the next year. This would then allow the short-term capital gain to be reduced by the long-term capital loss. Remember that capital gains and losses must first be netted within their respective classes. After this ordering, any leftover long-term or short-term loss can be netted against the other category's gain. If the taxpayer holds off the land sale until next year, the short-term capital gain goes to zero in the current year. In the year to follow, the taxpayer will pay $3,000 in long-term capital gains tax (15% x $20,000). This not only saves the taxpayer $4,000 in tax on capital transactions ($7,000-$3,000), but postpones the payment of tax for one year.

In summary, understanding how capital transactions work can provide taxpayers with the potential to save a significant amount of income tax. Don't just let the chips fall where they may, take a look at what you have and keep records. This is a classic example of knowledge is power.

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