who is the new twinkle in your eye...Dividends!
Michael S. Wallman, Vice President / Financial Advisor
The Canseco Financial @ Raymond James Financial Services.
It is nicer today than yesterday. Nicer, that is, to invest in certain types of investments.
And all because the new tax law has reduced the tax you pay on qualified
dividend distributions. The question now becomes; “Is your current investment
strategy still working for you?”
The impact the new tax law has on your investment process can
be quite significant, especially if your portfolio includes blue chip and income
stocks. These stocks are generally
purchased because a large component of their total return comes in the form of
consistent and steady dividend distributions.
Under the new tax law, the top tax bracket for qualified
dividends has been dramatically reduced. Beginning
in 2003, the tax rate for taxpayers above the 15 percent tax bracket is reduced
from 38.6 percent to 15 percent. For 2003 through 2007, taxpayers in the two lowest tax
brackets are taxed at 5%. For 2008,
the rate is reduced to 0%. Therefore, taxpayers in the 10 and 15 percent tax
brackets will pay no taxes on qualified dividend income received in 2008.
However simple this one change seems, the potential tax
savings it presents may open up new opportunities for you regardless of whether
you are saving for a child’s education or for your own retirement.
For example, you may want to explore repositioning your assets to take
full advantage of the change.
In fact, the new dividend tax law may have cracked one of the
old cornerstones of the accumulation phase in financial planning.
In the past, it was tax savvy to hold an investor’s dividend paying
stocks in their tax-deferred accounts such as an IRA or 401(k).
That old cornerstone may need to be adjusted.
It may now make more sense for a given investor to hold bonds and other
fixed-income investments into IRA and 401(k) accounts and hold dividend paying
stocks into taxable investment accounts to take advantage of the new, lower tax
rates on dividends.
The process for determining if, when and how you should take
advantage of the new tax law changes has many moving parts.
The decision making process continues to be based upon the determination
of your time horizon, along with your potential tax exposure, and your risk
Timing, of course, is
everything. This new more favorable
tax treatment may only be available for a short period of time. Unless Congress
makes this tax cut permanent, the new, more favorable tax rates will revert back
to the old, higher rates and this window period of opportunity will close.
in making any investment decision, you should not let the tax tail wag the
investment dog. It is important
that investment decisions are not focused solely on the new tax law.
Before making any significant changes to your investment strategy,
consider consulting with your financial advisor or tax preparer.
more information please call Michael @ 305-865-4300
may find Michael online with the Canseco Financial Group @ Raymond James
Financial Services at http://gayfinancialadvisors.com/Florida.htm