Capital Planning and Investment - Tips For Effective Capital Gains Tax Planning - myfirstinvest.com

Capital Planning and Investment – Tips For Effective Capital Gains Tax Planning


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Capital planning is the study of capital assets. These include financial resources, current assets, future assets, liabilities and estate. The purpose of capital planning is to provide a comfortable investment return while minimizing risks. As with any investment decision one must understand that they must be prepared for both positive and negative events. Capital planning and investment must be conducted by a qualified investment advisor who has the experience, knowledge and skills required to make sound investment decisions.

One of the first steps to take when planning for capital growth is to determine what your total assets are. Your total assets will include your personal assets such as your home and vehicle, your business assets including machinery, furniture, fixtures and computers. Once you have determined what your capital is you can then determine where you want to invest the funds.

An Overview

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When you are planning for capital growth, it is important to remember that you are working on improving your net worth. You cannot just invest the funds and forget about them. The goal of your investment is to create an asset base that will help to support you as you age. There are many ways to invest your funds. Some of the most common include stock markets, bonds and mutual funds.

A very important aspect of capital planning and investment is to be aware of your capital gains tax. Capital gains tax is based on the amount of profit you make from the sale of an asset. This tax is calculated by subtracting the cost of the asset from its fair market value. In most cases the asset will have been acquired using money that you pay into the account during the time it was owned.

It is important to remember when planning an investment that you do not have to pay the full amount of capital gains tax if you sell your asset within the timeframe specified in the policy. Insurance companies are required by law to issue a non-taxable certificate of deposit. These certificates of deposits are allowed to be withdrawn without penalty or taxation at any time. The tax-free status of these certificates of deposits also extends to their investment portfolios. Any investment portfolio that is over the amount specified in the non-taxable certificate of deposit is considered exempt from tax. Anyone who wants to take advantage of this exemption should discuss their investment strategies with their financial advisor.

Capital Planning And Investment

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Another way to reduce your capital gains tax is to use your retirement fund to offset the capital gain on your retirement assets. If you are still working, your contributions will be taxed as regular income and you can offset this with pre-tax dollars that you save with investments. If you are still not working, you can withdraw the funds within a year of the end of your tax year. However, you will not be able to claim the non-taxable portion of the fund.

Another tax-free option that you have for reducing your tax bill is to delay the sale of assets. Real estate investments and some asset investments such as depreciated machinery and equipment are not subject to capital gains tax when sold. However, if you hold on to these assets for longer periods than the shortest period of time possible, you are required to pay Capital Gains Tax on them. Again, this would be beneficial if you are still working. Retaining your property could also be beneficial if you intend to sell it in the future. By delaying the sale of your assets, you could potentially save yourself a lot of money on Capital Gains Tax.

In The End

Capital planning and investment are an integral part of any professional career. A qualified planner can help you plan for the future and make wise investment decisions. Be sure to discuss your capital gains tax needs with your planner before you start saving or investing for your retirement. Your accountant can give you a good working definition of your personal net worth and asset allocation for tax purposes. The good planning and investment decisions that you make now will pay off when you are ready to retire.

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