"The Internal Revenue Service taxes different kinds of income at different rates. Capital gains, such as profits from a stock sale, are generally taxed at a more favorable rate than your salary or wages. However, not all capital gains are treated equally. The tax rate can vary dramatically between short-term and long-term gains. Generating gains in a retirement account, such as a 401(k) plan or an IRA, can also affect your tax rate.
Short-term capital gains
Short-term capital gains do not benefit from any special tax rate – they are taxed at the same rate as your ordinary income. For 2013, ordinary tax rates ranged from 10 percent to 39.6 percent, depending on your total taxable income.
If you sell an asset you have held for one year or less, any profit you make is considered a short-term capital gain. The clock begins ticking from the day after you acquire the asset up to and including the day you sell it.
Long-term capital gains
If you can manage to hold your assets for longer than a year, you can benefit from a reduced tax rate on your profits. For 2013, the long-term capital gains tax rates are 0, 15, and 20 percent for most taxpayers. If your ordinary tax rate is already less than 15 percent, you could qualify for the zero percent long-term capital gains rate. For high-income taxpayers, the capital gains rate could save as much as 19.6 percent off the ordinary income rate."
Clearly if you're investing outside of retirement plans; long term gains and qualified dividends are what investors and savers should strive for. Bond interest and short term gains such as option income or stock gains are taxed as ordinary income whereas long term gains and qualified dividends are totally tax free for a person like Grandma. However-unfortunately for her the State of Oregon treats it all as ordinary income whereas if she moved to Washington State she'd pay nothing.
Wall Street Journal--"The basics: Qualified dividends, as well as capital gains, for individuals in the 25%, 28%, 33% and 35% income-tax brackets will continue to be taxed at 15%. Individuals with more than $400,000 in taxable income—and couples with more than $450,000—will see the rate rise to 20%. (People in the 10% and 15% brackets, as before, will have a zero tax rate on dividends and capital gains."
"• 10% on taxable income from $0 to $17,850, plus
• 15% on taxable income over $17,850 to $72,500, plus
• 25% on taxable income over $72,500 to $146,400, plus
• 28% on taxable income over $146,400 to $223,050, plus
• 33% on taxable income over $223,050 to $398,350, plus
• 35% on taxable income over $398,350 to $450,000, plus
• 39.6% on taxable income over $450,000"
10% on taxable income from $0 to $8,925, plus
• 15% on taxable income over $8,925 to $36,250, plus
• 25% on taxable income over $36,250 to $87,850, plus
• 28% on taxable income over $87,850 to $183,250, plus
• 33% on taxable income over $183,250 to $398,350, plus
• 35% on taxable income over $398,350 to $400,000, plus
• 39.6% on taxable income over $400,000
Bought more in my farm account today-paid 85.05/share. Increased my stake by 15% to 6.5% of the assets in this account.
I used cash generated from some tax loss selling to do the deal.
This account is 8% cash, 10% bonds and the balance in stocks. PM is ranked 4th behind BRK, LO and IBM which together makeup 44% of the assets in this account.
With today's purchase I congratulate PM on overtaking USB, AIG and COP in my top 10.
I did some tax loss selling today in my farm account selling both AG and GDX which offset about 8% of my yearly taxable gains. Due to my sell I predict that now is the time to buy. How many others are selling today to offset gains in others stocks as I'm doing?
I used 1/3 of this cash to buy more PM @ 85.05 per share, increasing my stake by 15% to 6.5% of the assets in this account.
I plan to sell fewer put options next year because premiums are too low and I'll buy more high dividend paying free cash flow generating machines like PM for 2014.
Per Charles Schwab-as of the close of trading yesterday, the S&P 500 is up 29.46% year to date-[this includes dividends], whereas my farm account is only up about 25%.
I'm short covered LO Dec 50 call options and also short 52.5 and 55 options for March and June, so I may have more cash to roll into both IBM and PM as of this Friday and again next spring.
My motto is to buy "LO" and sell call options high. PM certainly is "LO" but I'll just continue buying monthly with the cash I hold for selling cash secured put options in my IRAs.
All you have to do is place an order good tell cancelled/GTC and wait to see if it fills.
It also ties up your cash but some other stock may crash while you're waiting and you can always buy it instead.
I increased my stake in PM by 25% to 8% of the total assets in this account and I have more orders that may fill soon in other accounts if the price slide continues.
Grandma sold them so she could buy more stocks for dividend income which in her case is tax free.
Looking at several high paying dividend stocks for next year which could be bought next week for Christmas.
She sold these today-LORILLARD TOBAC 6.875%20 DUE 05/01/20 544152AB7
She bought them about 2-3 years ago and made 15% on her investment plus earned the stated interest.
20% of this cash was put in a 10 year CD with a 3.2% coupon and with a death put provision which the former bond did not have.
The balance will be invested in a dividend paying stocks because in her tax bracket, dividends are federally tax free whereas the interest on the bond she sold was taxable.
She owns 16 stocks and has 2-3 stock transactions per year but 70% of the time she'll keep a small stake in her original investment as a trophy. She also sells covered call options which is why her account is only up about 13% this year and makes it the worst performing account of all the accounts I manage for friends and family this year.
I'll post her current top 10 at year end.
Devaluation of the dollar over time due to the cost of wars, defense spending and Obama Socialism. And as the stock drops, PM' share repurchase plan becomes much more effective.
I've totaled the values of both my IRA and Roth IRA and listed the top 8 holdings so you'll have an opportunity to short them if you wish: #1-BRK--19%, #2-LO--11.7%, #3-IBM--11%, #4-PM--10%, #5-AIG--7.7%, #6-KO-- 6.2%, #7-INTC--3.8% and #8-STX--3.7%---total of top 8 = 73.1%
Note: I'm currently 20% cash which is used to sell put options.
These two accounts are collectively up 21% verses 28% for the S&P 500, so yes I'm having a bad year.