Investment Taxes: How is Your Strategy Affected?

Concept of Investment Taxes

Investors have many strategies to choose from when deciding how to help secure their financial future. However, they may not take one important aspect into consideration: investment taxes. Each type of investment strategy carries tax implications with it. Fortunately, these taxes may not be as painful as you think.

Forex Investment Taxes

Are you one of those risky cowboys who has chosen to brave the Forex market? If so, you’re in luck. When it comes to taxes, money matters may actually be fairly simple. They will fall under tax Section 988, and you will declare gains and losses within its parameters. The good news is that you treat these taxes like normal income taxes.

Essentially, the IRS counts 60% of gains or losses as long term capital gains and losses. 40% is considered short term.

In other words, the longer you hold onto your Forex investments, the better off you’ll be when it comes to Uncle Sam. If you’re itching to sell before the first year, things change. You’ll likely pay around the same as your normal income tax rate this way. The key to remember is to hold on for longer- if possible.

ETFs Investment Taxes

Are you invested in stocks and ETFs? You can avoid paying capital gains taxes if you are- and if you have a money manager who knows what he or she is doing. If you don’t have someone you trust, then as a casual investor, your best bet is to hold onto your investments.

However, when it comes to the dividends from your ETFs, it’s a little more tricky. This tax rate will depend on if you’ve had the fund for more or less than 60 days. If it’s been under 60 days, then the tax is the usual investor income tax rate. However, if the dividend is paid on an ETF you’ve had for over 60 days, the tax will fall somewhere between 0%-20%, based on your personal tax rate.

If you’re trading on your own or are a new investor, this is the time to consult a financial professional. The reasons are twofold:

  1. You’ll have someone to help you keep track of how long you’ve owned a stock
  2. You’ll have someone to help estimate your trading gains taxes before they become an issue

Never forget that when it comes to investing, you’re dealing with your money and your future security. Ask as many questions as you need to feel secure that you’re making the right choices.

Commodities Investment Taxes

Are you invested in commodities? Good; keep them. The Fed’s recent rate hake — and their anticipation of a few more this year — have helped boost the value of certain commodities, like gold. But what will that mean for your taxes?

Fortunately, the process for filing taxes on commodities is fairly straightforward, and may not require a tax professional (if these are the only assets you’re dealing with). They follow the 60/40 rule just like Forex taxes. With commodities though, any long term gains you have are capped at 15% and your short term tax will be the same as your normal income tax rate. Additionally, you don’t need to itemize these gains and losses. You’ll simply note what your net is for these investments.

When it comes to cashing out your commodities and claiming taxes on them, it’s important to stay current on the news and how your individual commodities are performing.

Stay a Smart Investor

In general, if you’re getting ready to make a sizable investment, or move your money from one type of investment vehicle to another- it’s always smart to do your own homework. Then, consult a financial professional, a tax professional or both. You don’t want your hard work to be lost thanks to Uncle Sam.

You still keep a large amount of your dividends which is another positive. Some investors shy away from the market because they think that their hard work will be eaten up in taxes, but that’s not always the case. Determine what your risk appetite is, and use that information to make your investing decisions.

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