Facebook Twitter Linkedin Envelope Phone

We are a multi-lingual firm, serving Spanish, Portuguese, Italian and French clientele.

CLIENT PORTAL

What is a Taxable Event?

What is a Taxable Event? Fitzwilliams Financial

Put plainly: a taxable event is a transaction that causes someone to owe money to the government in the form of taxes.[1] Seems simple enough, right? When it comes to retirement and savings, there are a few important taxable events that you might want to keep an eye on.

Earned Income

Receiving earned income from an employer is a taxable event.[2] When you receive earned income from an employer, you have to pay a percentage of that money to the federal government.[3] You also will probably have to pay some amount to the state you live in, and you may have to pay some amount to the local government as well.[4]

Dividends

When you receive dividends for stock ownership, that is usually a taxable event (although there are some exceptions to this rule).[5] This is especially important to keep an eye on if you are planning to use dividends as part of your retirement plan. Also, be sure to understand the difference between ordinary dividend income, which is taxed at your income level, and qualified dividend income, which may be eligible for a lower tax rate.[6] The rate at which these dividends are taxed also varies on the shareholder’s income.[7]

For people aiming to use dividends as income, if your earned income is lower than $42,625, you will not owe federal taxes on dividends.[8]

Selling an asset

Selling any kind of capital asset for a profit is a taxable event.[9] Capital assets are things like cars, property, stocks, bonds, collectibles, and antiques.[10] The sale of these kinds of assets is taxed differently, as any gain from the sale is categorized as a capital gains tax. The amount of the capital gains tax depends on how much you gained from the sale, how long you have owned the asset, and what your income level is.[11] The sale of assets that you have owned for less than a year is charged at a higher rate, which is called the short-term capital gains tax.[12] Assets that you have owned for more than a year are charged less and are considered long-term capital gains.[13]

The Takeaway

Taxes and tax management can be an important part of wealth management. Most folks are aiming to keep as much of their own money in their hands as possible. Tax optimization strategies are also very important for retirees and people who are about to retire.

If you’re looking for someone to take a look at your finances and give you suggestions, you might want to reach out to our advisors today for a complimentary review.

 

When consumer confidence hits a multi-decade low, it is completely natural for you to feel a sense of hesitation about your hard-earned savings. If you are approaching retirement, seeing prices rise while trying to figure out the right time to adjust your portfolio can feel incredibly stressful. However, this low confidence might actually be introducing a healthy dose of critical thinking into the market right now. Instead of rushing into investments out of a fear of missing out, I am seeing people take their time to analyze their moves before they act.

This deliberate pace could be a vital asset as we prepare for what might be a historic three trillion dollar wave of tech IPOs. The names hitting the market are incredibly popular, and the media hype may make you feel like you need to change your entire strategy to get a piece of the action. But we must look closely at the underlying reality: many of these massive firms are not yet profitable. The typical corporate fundamentals simply are not there yet.

Because of this, I believe you should treat these speculative assets with extreme caution, much like money you would take to Vegas. If you want to participate, you might consider limiting that exposure to no more than five percent of a well-diversified portfolio. You should never dismantle a carefully crafted, long-term retirement plan just to follow a market trend. Furthermore, you must realize that extreme trading volumes during these public launches could cause your orders to execute at vastly different prices than you originally intended. It pays to be patient and let the dust settle.

If you have questions about how these shifting market dynamics might apply to your personal retirement plan, our team is always here to help.

Key Takeaways

  • A drop in consumer confidence may encourage a healthier investment environment by forcing individuals to rely on critical thinking instead of emotion.
  • An upcoming wave of massive technology IPOs might generate significant media hype, but these companies may lack current profitability and traditional business fundamentals.
  • Investors should avoid allocating more than five percent of a diversified portfolio to highly speculative, unproven market assets.
  • Heavy trading volume during a major public offering could cause investment orders to execute differently than an investor expects.

Fitzwilliams Wealth Management, Inc. is an SEC registered investment adviser. FWM and Fitzwilliams Financial are affiliated companies. This content is for informational purposes only and should not be construed as personalized investment advice. We do not provide tax or legal advice. Investing involves risk. Media appearances are for informational purposes only and do not constitute an endorsement.
Categories
Recent Posts