In: Finance
How might your financial investments affect your tax bill?
Some advisors have a flat fee while others will charge you a commission; which would you prefer and why?
A common man do the financial investments either to build a portfolio over the years or saving for their retirement.
Taxation on investments are based on several factors. If the investments are made on stocks and the investor receives an income then it will be reported in internal revenue service of 1099 forms.
For instance, if an investor has a capital gain then the tax rate is mainly depended on whether they had made a short term investment or long term investment.
For short term investment, investments which are for one year or less than one year, is taxed at normal interest rate.
For long term investment, which is more than one year, are taxed lower rates than normal income tax rates.
However, if an investment incur any type of loss or net capital loss, reduced from other income of upto $3000 and if the amount is more than $3000, that will carried for next tax year.
If the investor receive any dividends from any of the mutual funds, stocks or index funds, investor has to pay taxes.
Nevertheless, For investments in retirement investments there will be favourable tax provisions and bonuses.
Flat fee advisors are people who charges for an hourly/flat fee for providing planning services
Benefits:
1. Transparency
2. No hidden charges
3. Not biased on decisions because we are charging for the services.
In case of commission advisors,
Most of the decisions will not be of investors interest everything happens for advisors benefits also because advisors get commission only if they make a positive sale.
I personally prefer flat fee advisors because they can give a decision on my personal interest and planning even though charges is high.