If you are new to investing and wondering what you owe the government you are in the right place. You might be overwhelmed thinking about tax on investment income you had last year or will have this year. If this sounds like you we have you covered.
Keep reading to learn more about handling tax on investments.
3 Important Tips For Perfectly Handling Tax on Investment Income
1# Capital Gains on Collectibles
If your investment is collectibles such as wine bottles, books, coins, and rare stamps there are two different tax brackets that those collectibles can be taxed in. These are short term and long term tax brackets. Collectibles held less than one year are taxed in personal income tax rates.
Any collectibles that are held longer than a year are taxed at a percentage of 28. For example, if you buy an art collectible at $100,000 and sell it decades later for $20,000,000 you would owe the government $5,572.000 in taxes. This is 28% of the capital gain which in this example is $19,900,000.
2# Real Estate Investments
If you have rental houses, rental offices, storage units, hotels, or apartment building the tax rate will vary based on your income. It can be either 0%, 15%, or 20%.
If you choose to defer your real estate investment profits or capital gains you can do a 1031 Exchange. This is when you sell your property and put the money into another investment property that is of greater value or equal to.
Don’t forget when renting your properties to ask your tenants for a pay stub template or a few week’s worths as proof of income. This will ensure you do not lose out on money with your investment from not getting paid by a renter.
3# Operating Expenses
If you were not aware when you have rental properties as your investment the money you spend on operating you can use to reduce your taxable rental income.
Anything such as pest control, property taxes, utilities you pay, fees paid to a property manager, etc you can subtract from the money you make.
All of your operating expenses will dramatically decrease the amount you pay in taxes because your taxable income will decrease.
This is why it is important to keep track of everything you spend to keep your rental property going.
Feeling Less Overwhelmed About Tax on Investment Income?
We hope that with the above knowledge about tax on investment income you will not feel as overwhelmed about paying taxes on your investments.
Whether those investments are collectibles, rental properties, or any other type of investment, taxes can have a large impact on your net return.
It is good to have the right accountant to help you navigate the lingo and it is also a good idea to become educated in order to make the most out of your investments.
Did you find this article on taxes helpful? Please do not forget to check back often to never miss our latest posts!
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Author: Cathy Carter