NCM NEWS COMMENTARY
HOW WILL THE NEW TAX LAW AFFECT YOUR PORTFOLIOS?
If you are like most Americans, you are probably wondering how the new tax law will affect you directly. We have saved you the time of mulling through the "Jobs and Growth Tax Relief Reconciliation Act" and highlighted one of the key points for you. The main key point is that all taxpaying Americans invested in the market could eventually be positively impacted.
Dividends and Capital Gains Taxed at New Lower Rates
The tax relief for capital gains and dividends could not have come at a better time. After three years of declining markets, the capital gains tax has not been on the minds of t investors. Most have carry-forward losses from three years of bad markets; which, when the market plays out positively, may be used over subsequent years to offset any gains. While this may lessen the impact of the act, lower rates are still a move in the right direction. With the market firming up this year, whether short-lived or not, capital gains tax could be an issue in future years.
Depending on your ordinary income tax bracket, you are currently taxed at either 20% or 10% on a long-term capital gain. (The 10% capital gain rate would apply to only those in the 15% ordinary income tax bracket. There are also other rules pertaining to five-year holding periods.)
The rules for taxation on dividends have not been the same as the capital gains. Up until now, you paid tax on your dividends at ordinary income tax rates. Those of you in the 38.6% tax bracket have been paying close to twice as much tax on dividends as capital gains.
The new tax act will make the dividend and capital gain tax equal. If you hold your assets for at least one year, you will now pay a 15% capital gains tax (5% if you are in the lowest income tax bracket) when you sell the asset and generate a long-term gain. Dividends paid to you will also be taxed at the 15% (or 5% once again if you are in the lowest tax bracket).
What does this mean for the average investor? There will less tax to pay the government and more money to invest in your future!
