Wednesday, June 18, 2008

Take Advantage Of Tax Breaks

My dad taught me that a dollar reduction in taxes was more than a dollar earned, since taxes would need to be paid on earnings. So I am always interested in using tax breaks for which I qualify.

Last week, I took advantage of one of the special tax benefits that is valid from 2008 to 2010, the 0% long term capital gains tax rate. For joint filers with taxable income below $65,100 and single filers with taxable income below $32,550, the federal income tax rate for long term capital gains and qualified dividends is ZERO. That's right - ZERO.

On June 9, 2008, I sold Potash (POT) for a 211% gain after holding it for one year and 2 days. As a result, I will owe no federal taxes on this long term gain. Google (GOOG) is my other long term holding which can benefit from this tax benefit and I had sold part of my holdings on May 12, 2008.

Since the benefit is only for federal income taxes, I will still owe state taxes on the profit. However, I still enjoy not having to pay any federal income tax on these gains.

Disclosure: At the time of publication, I own shares of Google.

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This is not financial or investment advice. Please consult a professional advisor.

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