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Capital Gains Tax and You - The US Stock Market Finished Up 30% Last Year!

Posted on 13, Jan, 2014

After the financial turmoil of the last five years the end of 2013 saw the stock exchange end at an all time high, with the single biggest increase in value since 2009. This wasn't just a US-based phenomena either because the rest of the world, Europe and Asia included, enjoyed similar gains. The only real exception to this surge in share value was the Chinese stock market which experienced a mirror image devaluing of its own stocks. Overall the US stock market finished up 30% on the year on the whole, which is nothing short of astonishing.

In a major shock gold suffered its heaviest loss in 3 decades, although this might have a lot to do with hyper-speculation on gold, driving the value down. That being said gold is still one of the safest investments you can have because precious metals, by their very nature, are finite so their value is preserved over a span of decades and centuries and not just annual financial cycles.

This dramatic improvement of the US stock market might incentivize more people to invest in stocks, especially those scared away by the FIAT currency disaster which brought the world of finance to its knees in 2008. Just for once the only thing being downsized in the US economy was the fear of further economic nightmares, something which everyone was glad to see.

Obviously this superb rally means that your stock dividends are going to be way up on previous years, as are your capital gains tax liabilities. So how do you go about dealing with all those extra dividends and the taxes you might owe?

The taxation of your stock market dividends will depend almost entirely on your current income bracket - basically anyone in a higher income bracket could stand to pay more taxes on their dividends based on the changes made in The American Taxpayer Relief Act of 2012 (ATRA). Under this act the top rate of tax on dividends was increased from 15% to 20%, and it also increased the tax rate on short-term capital gains from 35% to just under 40%.

These particular tax rates only apply to couples who are earning more than US$450,000 per year, or a single person earning more than $400,000 per year, which means they're focused solely on high earners, meaning that those who can afford to pay taxes are being taxed accordingly, while low income families are being given more tax breaks. This is a total change from the years of the Bush administration.

Right now, even with the ATRA changes, capital gains tax is still a far "cheaper" option for you in terms of investments, with capital gains tax standing at around 23% versus the whopping 40%+ you'd need to pay on interest income of the same value.

If all of the above seems a like a lot to take in and you're finding yourself a little bit confused with all the interest rates and how capital gains tax is really going to affect you then we always recommend that when it comes to paying your taxes that you seek the advice and assistance of a qualified CPA or financial consultant.


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