Capital Gains Tax
Everything you own and use for personal, or investment purposes is a capital asset, like your house, stocks, and bonds. When you sell capital assets, the difference between the amount you sold it for and your basis, which is usually what you paid for it, is a capital gain or capital loss.
Capital Gains on assets held for less than one year is a short-term gains and usually taxed at ordinary income tax rates.
Tax now
Tax now means that any earnings from these accounts must pay tax for that year. For example, you must report and pay tax on earnings from savings accounts, Certificates of Deposit(CDs), dividends from stocks, mutual funds, and money market funds.
Tax Later
Tax later which means the money you put in is pre-tax. Pre-tax money deposited in an account is money that you have not yet paid income tax on, but you'll be paying tax later when you withdraw it. These accounts are also called tax deferral account. In the U.S., tax deferral accounts commonly take the form of IRAs,401ks, and 403(b)s.
In the U.S., when you begin to take your money out after 59.5 years old, you'll be taxed as ordinary income tax rates, but if you take money out before 59.5 years old, you'll get a 10% penalty in addition to taxes. Also, you can't keep money there forever. You must start withdrawing it when you reach 73 to75 years old or pay a 50% penalty. However, some tax later accounts are tax deferred but not tax deductible.
Tax-Advantaged Access
Tax-advantaged access means you won't pay tax when you access money from your account. Some
Roth IRAs,529 College Savings plans, and Life Insurance are popular investments vehicles that get tax-exempt distributions.
Before Or After?
Would you prefer paying taxes now and defer them until later when you get old? Or should you pay now and worry about taxes in the future? In other words, would you prefer you pay tax on the seed or the harvest? Contact us, learn more.
Learn More
Contact us to learn more about Taxing issues.