If you are one of those people who do their own taxes this may be the year to hire an accountant. By now you have probably gotten all of your 1099 forms in the mail from your brokerage accounts and now you need to make sense of it all. There are two major changes to the tax laws for 2003 that could have a large impact on your tax bill and how you manage your money going forward.

Capital Gains

The first change is to capital gains taxes, that is taxes you pay on your gains from selling a stock or mutual fund. Short term capital gains, that is any gain on an investment you sold that you held for less than a year is still taxed as ordinary income. Which means rates can be as high as 35%. Long term gains, gains on investments you held for more than a year are where it gets interesting. Any gain on an investment you held for more than a year and sold before May 5 of 2003 is taxed at 20%. However, if you sold the investment after May 5 its only taxed at 15%. Why they chose May 5th I have no idea, obviously somebody up there wants to complicate your life. This makes tax planning quite difficult because short term losses offset short term gains before they offset long term gains and long term losses offset long term gains before they offset short term gains. Confused yet? Because short term gains can be taxed as high as 35% and long term gains are only 15% you want to do a couple of things, first if you can avoid selling something for 12 months do it. Second, if you anticipate short term gains during the year and have long term losses avoid taking long term gains until the next year. Alright, if you werent confused before you are now. Because the tax rates are so wide now you need to consider taxes on any sell decision you are making. Bottom line, you cant do your tax planning on April 14 when your accountant tells you how much you owe, you need to sit down with your accountant and investment advisor in October or November this year to plan this out for 2004.

Dividends

Dividends are also taxed differently now. In the past dividends were ordinary income which could be taxed as high as 35%. For most people the maximum tax rate on dividends that qualify is now 15% but just like capital gains its not so simple. First you need to hold onto the stock on which dividends where paid for more than 60 days. The holding period is actually much more complicated than this but I dont want to confuse you too much more. If you are a buy and hold investor you probably dont have to worry, if you are an active trader however you will have a tougher time with this. The other key point is that not all dividends qualify but it is up to you to determine if yours do or not. The key ones that dont are dividends from mutual funds that are actually short term capital gains or bond interest. Another thing you need to know is that if your brokerage firm lends your shares out (which they can do if you have a margin account) your dividends wont qualify either. You need to call your broker to find out about this. This also brings up an important planning point. If you are like most people you have some stocks and some bonds. Your stocks might pay dividends and you may sell them generating long term capital gains, all taxed at 15%. Your bonds pay interest that can be taxed as high as 35%. You need to figure this in when you decide how to hold these different investments. If you have 401ks or IRAs these accounts grow tax deferred so they are the perfect place to put your bonds. If you have other accounts that are taxable, like joint accounts or individual accounts you can put your stocks in those. This allows you to take maximum advantage of the tax law changes.

All told these changes give investors some great way to save some money but you need to know how to take advantage of them for maximum effect.

Matthew Tuttle is the author of "Financial Secrets of my Wealthy Grandparents". For more information, or to sign up for his free newsletter, please visit http://www.matthewtuttle.com.

The Proposed Income Trust Taxation — Impact to Canada and Investors Around the World
On October 31, 2006, the Canadian government gave a rather nasty surprise to the market by imposing a new tax on income trusts. Existing trust will be taxed starting from 2011, for new one the effective date is as early as 2007.The Toronto stock exch...

Taxes for Day Traders and Investors
Whether you are an active day trader or just put money into the market for long term gains, taxes are something you need to address. The IRS views traders and investors differently.Taxes for Day Traders and InvestorsAs odd as it may sound, the tax co...

Secondhand Smoke (Passive Smoking) Are You Putting Your Family At Risk If You Dont Quit Smoking?
Smokers often complain that they are made to feel uncomfortable smoking around non-smokers. There are in fact many good reasons why non-smokers feel uncomfortable when they are in the company of somebody smoking and it isnt just the bad smell.The inh...

VAT Compliance - International Tax Liability
International VAT compliance can be a tricky thing to deal with, since taxes on certain things might be higher or lower than others. In some countries, food is taxes, while in others it is not. Do you know which category your home country falls und...

International Tax Attorneys
Taxes must be paid on the basis not just of income earned within the country, but also outside the national borders. The IRS has international tax laws that deal with such income and an international tax attorney will be able to give you the best pos...

When is a Reverse 1031 Exchange the Right Choice?
Tax-deferred exchanges are great opportunities for real estate investors. In a typical property transaction, the seller is hit with the capital gains tax. Fortunately, section 1031 of IRS code stipulates that no gain or loss will be recognized in a q...

Tax Deductions on Car Donation Explained
Any donation you make to help out a worthy cause can also help you with your taxes. If you have an old car parked in your garage and you dont know what to do with it, car donation is a wonderful way to help a charity. Although the car donation laws h...

Taking Responsibility is The Way to Freedom
Taking Responsibility for Our livesWe cant begin to see what our unconscious mind holds or is saying until we say yes to 100% responsibility and make a decision to work with our Higher Mind and its laws. These laws are not the same as man made laws t...

Tax Laws for Second Homes In The US
Americans buying second homes can trade down to an inexpensive house and use the profit from the sale of primary property as a down payment on a second home. The rise in prices of homes in many areas has raised a huge demand for second homes which is...

Investing in China - Establishing a Business Presence
Three primary investment forms are commonly used by foreign companies to establish a permanent presence in China -- the Sino-foreign Joint Venture, the Wholly Foreign Owned Enterprise, and the Representative Office.Sino-Foreign Joint VenturesThis inv...