Top 5 Tax Mistakes Investors Make

The tax laws are fairly complex and people make mistakes, but there are some mistakes that investors should not make.

  1. Taking short-term gains when waiting will turn the gain into a long-term gain.  Appreciated gains on assets held one year or longer are taxed at a lower rate than those held for less than a year.
  2.  Foreign stock investments held in a tax-qualified account.  Many foreign companies are required to withhold foreign taxes on dividends paid. U.S. investors can claim a tax credit on their tax returns, effectively recouping this lost dividend, but only if the foreign stocks are held in a taxable account.
  3. Failing to realize capital gains.  If you have a gain in a stock and believe that stock is now overvalued, do not allow fear of taxes to sell and lock in a gain.  That is the trap that many tech stock owners fell into in 1999, just before the tech bubble burst in 2000.
  4. Failing to take capital losses.  If you have a loss in a stock, the loss can be used to offset a realized gain in another stock, thus reducing your tax liability.  If you still like the stock you have a loss in, you can buy it back later as long as you observe the “wash sale rule.”
  5. Taking a direct distribution from a 401(k) or similar retirement plan.   Distributions from retirement plans should be done via a custodian-to-custodian transfer or you can be subject to taxes as well as potential penalties if you are under 59 1/2.

Korving & Company, LLC

Korving & Company is an investment management, financial advisor, and financial planning firm that specializes in working with retirees, couples who are serious about retirement planning, and women who have recently suffered the loss of a spouse.

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