5 Ways to Make the Tax Cuts Work for You
By: Source: AARP Bulletin Today Date Posted: 2003-08-12 12:44:22
The new tax law has lots of wrinkles—enough to keep experts busy for a long time figuring out all its implications. But here are five pieces of advice that financial advisers agree make good sense right now:
1. If you're holding stock or other property that's grown in value a great deal, this may be a good time to sell it, given the substantial reduction in the capital gains tax rate.
2. Since the tax rate on dividends has also been lowered, you may want to add some dividend-paying stock to your portfolio. But don't go overboard. In general, tax matters should figure into your investment planning but shouldn't be the main consideration. More important is keeping your assets balanced to suit your needs.
3. Be aware that not everything labeled "dividend" qualifies for the lower tax rate. For example, dividends paid by real estate investment trusts (REITs) will continue to be considered ordinary income, because their dividends are not taxed at the corporate rate.
4. If you're making withdrawals from your 401(k) plan or IRA, don't expect any relief come tax time. Since dividends and capital gains that have accrued in those accounts are already tax-sheltered, withdrawals will still be taxed at ordinary income rates.
5. If you're employed, your paycheck is probably slightly larger now than before the tax cuts, since less tax is being withheld. But bear in mind that all the tax cuts carry expiration dates and may not last. For this reason, you may be better off putting the money aside for a rainy day instead of spending it.
Share
preview