|
|
When to use Microsoft Money for Mutual Fund Recordkeeping
While you might assume any mutual fund investor should use Money's mutual fund record-keeping tools, that isn't the case. Because investment record keeping, including mutual fund record keeping, requires significant work and involves complexity, you need to make sure the effort is worth it.
In general, you keep investment records for any of the following reasons:
Reason 1: You want to track interest and dividend income.
Reason 2: You want to track realized and unrealized capital gains and losses.
Reason 3: You want to measure or grade the profitability of an investment by calculating its annual return or yield.
Obviously, all three of the tasks in the preceding list sound worthwhile, but many investors won't need to use Money's record-keeping tools to get this sort of information.
Tracking Investment Income
If your investing is done using tax-deferred accounts, such as individual retirement accounts, 401(k)s, and other similar investment containers, you don't need to track the investment's income. The income from tax-deferred investments stored is not currently taxable. The money you contribute to one of these tax-deferred accounts can be counted as a deduction when the money is transferred into the account. Any money you ultimately withdraw from one of these accounts can be counted as income when you move money out of the account and into your regular checking account.
For example, if you contribute money to an individual retirement account by writing a check on your regular bank account, you can categorize the check as "IRA contribution" when you write the check. This categorization lets you easily track the IRA contribution deduction you will need to report on your tax return. Similarly, if you withdraw money from an IRA account, all you need to do is categorize the deposit as IRA income. This lets you keep track of the IRA withdrawals you will also need to report on your tax return.
Tracking Capital Gains
As mentioned earlier, realized and unrealized capital gains are often the second reason for using Money for investment record keeping. In the case of a regular taxable investment account, any time you buy and then later sell an investment, you experience a capital gain or loss that needs to be reported on your tax return. Because capital gains and losses are important for your tax return, when you keep records of taxable investments you want to track these items. You even want to track potential, or unrealized, capital gains and losses.
However, while tracking unrealized and realized capital gains and losses is important for taxable investment accounts, you don't need to do this for tax-deferred investment accounts like individual retirement accounts and 401(k) accounts. The reason is simple. For tax-deferred investment accounts, gains and losses aren't taxable. Just as is the case with investment income, inside a tax-deferred investment account, gains and losses have no effect on taxable income. Again, the only tax effect comes from money you move into and out of the account. In general, money you move into the account is a deduction for purposes of calculating your taxable income. Money you move out of your account is an income amount for purposes of calculating your income tax return.
The general rule described in the preceding paragraph--that money moved into and out of a tax-deferred investment account is what produces a tax deduction or taxable income amount--is true. However, predictably, some tax-deferred investment accounts don't work this way. There are, for example, nondeductible IRA accounts.
A nondeductible IRA account doesn't give the taxpayer a deduction merely for moving money into the account. Also, a Roth IRA account doesn't actually produce any taxable income just because you move money out of the account. The primary benefit of a Roth IRA is that you get to withdraw money from the IRA without including the withdrawal on your tax return.
However, in spite of the fact that money moved into certain types of IRAs or out of certain types of IRAs doesn't trigger a tax deduction or taxable income, the general rules described here still apply. Even for nondeductible IRAs or Roth IRAs, you don't need to track investment income, dividend income, capital gains, and capital losses for tax record-keeping using Money.
Measuring Investment Performance
As identified earlier, the third reason for investment record keeping concerns investment performance measurement. In general, one of the things you want to do when you become serious about your investing is calculate how good or how bad an investment performs. Complete and accurate investment records force you to honestly evaluate your investing.
One of the ways you measure investment performance is by calculating the annual return, or yield, produced by the investment. For example, if you buy a stock for $12 a share and later sell it for $18 a share, you should calculate the annual return on the stock.
An annual return, or yield, resembles an interest rate. By comparing the return a stock earns to the return provided by other investments, you gain a frame of reference and get a better idea of whether a particular investment makes sense.
While calculating returns obviously makes sense, note that one of the tasks your mutual funds management company does is calculate annual returns. Therefore, you don't need to duplicate this effort. In effect, one of the services you are already paying the mutual funds management company for is the calculation of this important performance measure.
Mutual fund management companies calculate returns on an annual basis--typically using the calendar year as the period for which returns are calculated. Your investment holding period may not match the period for which the return was calculated. For example, if you hold an investment for one year but your year runs from July 1 to June 30, a return measure provided by the mutual fund company may not be useful if the return is from January 1 to December 31. Nevertheless, if you use the prudent mutual fund investment strategy--which is simply to invest for longer periods, to buy and then hold--the mutual fund management company's performance measurements do give you the information you need.
|
Income Tax Related News
Some Democrats Propose Hiking Wealthy Income Tax (KPUA AM 670 Hilo)HONOLULU (AP) ââ¬â Leading state House Democrats are proposing to balance the state budget by boosting income taxes on the relatively wealthy. House Speaker Calvin Say is readying a proposal to increase the state income tax for those making more than $150,000 a year.
|
Related Articles
- How To Turn Business Losses Into Cash Flow
By Christopher Raynalwww.masteraccountants.co.nzYou have permission to publish this article electronically or in print, free of charge, as long as the bylines are included. A courtesy copy of your publication...
- Federal Income Tax
Federal income tax is withheld from the pay of almost all employees. Employee pay is inclusive of salaries and wages, bonuses, commissions, and vacation allowances. It is the responsibility of the employer...
- There Is No Such Thing As Tax Simplification!
I'm a little upset right now, so please bear with me. Idon't get upset very often - you can always tell becausesmoke starts coming right out of the top of my bald head! -but I'm here to tell ya', this...
- Deciding when to File a Tax Return?
April 15th - "The Day of Reckoning"! Every year, millions of Americans get ready to pay taxes to Uncle Sam, or get ready to collect a tax refund from Uncle Sam; when did this become the great day that...
- 1099-MISC Forms For Independent Contractors for 2005
As we begin 2005, you're probably not thinking about taxes at all. This is a mistake as deadlines are approaching for issuing and filing 1099s to independent contractors.What is a 1099 MISC?Generally speaking,...
- Capital Gains Tax
The current tax system imposed on corporations by the U.S. government is at best, a biased system; for corporations that have a net profit, taxes on those profits amount to a full one-third. So, if you're...
- Tax Evasion
What is tax evasion, and how does our government control it? That's a really big question to answer, so let's break it apart and answer it in two different paragraphs. Tax evasion is the intentional avoidance...
- Convert To Roth IRA Regardless of Income - 2010
An odd quirk in the recent legislation to extend the Bush Tax Cuts is giving IRA holders a huge break. For one year, and one year only, the income cap will be gone. Convert To Roth IRA Regardless of Income...
- How Likely Are You To Be Audited?
Statistics for IndividualsUnfortunately, the IRS increased its rate of auditing individuals in 2003 when compared to 2002. The increase was approximately 14%, but still constituted only 6.5 audits for...
- The History of the Internal Revenue Service
Do you ever wonder, how a country that revolted because of the unfair taxation of tea, came to be under the tight control of the Internal Revenue System? It seems kind of ironic, doesn't it, that the very...
- Low-Tax States Have Stronger Economies
A new study of state tax burdens ound that low-tax states outperform the higher tax states in employment, personal income and population.The report, entitled "High Taxes Lower Economic Performance," was...
- Tax fraud and Internal Revenue Service (IRS) Tools
What is tax fraud, and how does our government control it? That's a really big question to answer, so let's break it apart and answer it in two different paragraphs. Tax fraud is the intentional avoidance...
- IRS Audit - A True Story
Who does not fear an IRS audit? We all do. We all fear the face to face, exhausting, unpredictable and time consuming interaction with the Internal Revenue Service's agent.We all have that scary feeling...
- Capital Gains Tax
The current tax system imposed on corporations by the U.S. government is at best, a biased system; for corporations that have a net profit, taxes on those profits amount to a full one-third. So, if you're...
- Highlights of IRS List of 2005 Tax Scams
Each year, the IRS lists various scams taxpayers get caught up in. The top 2005 scams include several that manipulate laws governing charitable groups, abuse credit counseling services or rely on refuted...
- A Big Tax Loophole Just Got Bigger
Believe it or not, there are ways to convert taxable incomeinto non-taxable income, without any fear of an IRS audit.Here's one of my favorites. It's been part of our belovedtax code for over 30 years,...
- W-2s
There has never been a more welcomed term in the adult taxpayer's life, than the invention of the W-2 and January 31st; let's take a moment to examine the W-2, and what it really means to the average taxpayer....
- Earned Income Credit
This is perhaps one of the best ways the government has introduced, to date, to raise families out of poverty, while requiring them to remain productive citizens. The Earned Income Credit is a refundable...
- Do not let IRS make you Wait for the Wrong answer.
It's widely known that, if you hit a snag while doing your taxes you can call IRS for answers and you if you wait long enough you will get an answer, but is it the right answer?Quote: "Two years ago it...
- Earnings From Abroad and Taxes
With the every expanding global economy, many people receive earnings from foreign entities. Unfortunately, the federal government wants you to pay taxes on it. Taxes on Your Earnings From AbroadThe federal...
- Innocent Spouses - Relief from Taxes
Historically, tax issues arising from bad marriages fell into the category of "better or worse" for marriages. The IRS granted no innocent spouse tax relief, but has changed its views.Tax ReliefWhen a...
- IPA Reveals CPA Firm Trends, Record Growth
Sept 12, 2006 The nation's 100 largest public accounting firms saw fees grow a record-breaking 16.5 percent for fiscal year 2005-2006, and all 100 experienced positive growth, according to a new report....
- Choosing A Business Tax Service
There are a number of ways that you can find tax services companies. The yellow pages is a good place to start for companies in your area but, depending on where you live, the list of names may be extremely...
- New for 2006, the Roth 401k Plan
One of the new tax strategies available in 2006 is the Roth 401k. A taxpayer may place up to $15,000 ($20,000 if age 50 or older) in a Roth 401k instead of a regular 401k plan in 2006. The 401k plan needs...
- Personal Exemptions
Thanks to the complexity of the United States tax codes, the system itself, and the variations of tax codes from state to state, completing your personal tax return and maximizing your deductions and exemptions...
- Family Limited Partnership Overview, Part II
Income Tax BenefitsFLPs also provide a number of valuable income tax benefits to the partners. Among these benefits are the following:* Allows pass through of items of income, expense, credit and deduction...
- How to Save Taxes with an S Corporation
How to Save Taxes with an S CorporationEver wondered why so many small businesses--more than 3,000,000 at last count--operate as an S corporation? Simple. An S corporation saves business owners big taxes...
- Social Security and Our Current Tax System
Every week that you work, there are taxes deducted from your gross payroll that are distributed to the Social Security Administration, along with other programs administered by the government. Of all the...
- Refund Anticipation Loans -- More Harm than Help
If someone offered to give you a loan for $2100 at interest rates of up to 222 percent you'd probably laugh at them and walk away; but, this spring, 1 in 10 Americans will do just that: for the privilege...
- Tax Quotes and Jokes for Tax Season
Like death, paying taxes is inevitable. In the case of most Americans, tax season is just around the corner. If only paying taxes was so easy.As you begin pulling out those receipts, the eraser and reading...
- Tax Preparation Software
Web-based tax preparation services have a few advantages over their desktop counterparts for certain categories of users. So, if you have avoided doing your taxes online until now, you should start considering...
| | |
