Do you know what the wash rule is? The wash rule is a tax rule that prevents you from claiming a loss on a stock if you purchase the same stock back 30 days before or after you sell it. This can really put a crimp in your investment plans if you want to take a loss on a stock, but figure it is primed for a rebound in a week or so. You want the loss, but don’t want to be out of the stock for 30 days becuase you might have to buy it back at a significant increase in cost.There are a couple of solutions to this problem, none of them perfect, but all worth exploring. If you are wanting to sell a mutual fund in this situation, you can do some additional research and find a fund out there with similar investment makeup and buy that fund instead of the one you just sold. You can also buy back a different stock (say Exxonmobil instead of Conocophilips, or JPMorgan Chase instead of Wells Fargo) if you feel they will behave similarly. If you can’t find a stock that will fit the bill and you have some [...]
Brian’s Tax and Financial Musings
If you have an investments in stocks or mutual funds for income, what kind of dividends are you earning? There is more than one type of dividend, and the type you are receiving may be costing you more than you realize. Dividends from any regular corporation are normally dividends ‘qualifying’ for special tax treatment. These ‘qualified’ dividends are taxed at a maximum rate of 15%, and if you are in the 15% bracket or less for federal taxes, they are not taxed at all! If the dividends you are earning are not ‘qualified’ (REIT and preferred stock dividends come to mind, among others), you will pay ordinary federal tax rates on them.If you have a qualified dividend paying you 5% and a nonqualifed dividend or a corporate bond paying you 5.7%, you are actually earning more money after taxes with the qualifed dividend. You need to think about this before you invest in any income producing security.
Brian’s Financial Musings
What is an open-end mutual fund? What is a closed-end mutual fund? What is an exchange-traded fund (ETF)? Why did the cactus cross the road? (It was stuck to the chicken.) Anyway, each of these types of mutual funds have different characteristics and different fees.An open-end mutual fund trades at its Net Asset Value (NAV) net of its expenses (management fees, etc). The fund is constantly issuing and redeeming shares (open ended). At the end of each trading day the NAV for the day is calculated and all shares purchased during the day are bought and sold at that price. (So you normally don’t know till the next day what you paid for the fund).A closed-end fund issues a set number of shares when it is set up at a set price (like an initial public offering (IPO) of a stock). Normally no more shares are issued; the shares then trade on the open market like a stock. You can buy them during the normal trading day like a stock. These shares can trade at a discount (below) or a premium (above) to their NAV. Usually investors want to buy shares at a discount to the NAV because they feel [...]