Weather | Sports | Forums | Comics | Classifieds | Calendar | Movies
I'm sure our representatives in Congress mean well, but whenever they start tinkering with the tax law, things inevitably get more complicated, especially for investors.
If you thought your 2002 tax return was a bear, wait until you get a look at the 2003 version.
As you've probably heard, Congress reduced the tax rate on some dividends and capital gains, but not all of them.
It's going to be up to you, your tax preparer (if you have one) and the companies whose securities you own to sort things out. The process will require new and more complicated versions of Form 1099-DIV and Schedule D.
Most dividends will now be taxed at the same rate as capital gains, but others will continue to be taxed at ordinary income tax rates. The 1099 forms you get next year will distinguish between "ordinary" dividends and "qualified" dividends. The "ordinary" category includes dividends paid by bond mutual funds and most dividends paid by real estate investment trusts.
Capital gains are even more complicated. Long-term investments sold after May 5 qualify for the new rates of 5 or 15 percent, while those sold earlier will be taxed at the old rates of 8, 10 and 20 percent. Investments held less than a year are still classified as short-term and taxed at ordinary income rates.
Some gains don't qualify for the lower rates no matter when they were sold. Certain real estate investments get taxed at 25 percent and collectibles at 28 percent. Look for more boxes on that 1099 Form.
The Schedule D is where you have to make sense of the whole situation and figure out what to report on your Form 1040. Instead of last year's 40 lines, the new Schedule D will have 53 lines plus worksheets. You can get a look at the forms by going to www.irs.gov and typing "draft tax forms" into the search engine.
If you're an investor, this might be the year you decide to get professional help with your tax return, or use tax preparation software. The good news is that your taxes should be lower - unless, of course, your income has gone up.
Q. How do you open an account with an out-of-state bank? I've seen some advertising higher yields, but I don't know how to go about it.
It's as easy as picking up the telephone. The bank will send you the forms by mail. You fill them out and mail them back with your check. Some banks allow you to jump-start the process by filling out forms online.
Be sure to stay within the limits of FDIC insurance. You can verify FDIC coverage online (www.fdic.gov) or by calling toll-free 1-800-934-3342.
Q. My husband is 591/2 and newly retired. I am 56, working part-time and planning to retire in three years. We have about $900,000 in retirement accounts, no debt and no mortgage. We live frugally and will need to withdraw only about $10,000 to $12,000 a year from our accounts. Right now we are in the 15 percent tax bracket. We are concerned that when my husband reaches 701/2, mandatory withdrawals plus Social Security and other income will put us in a higher tax bracket. Would we be better off converting about $10,000 a year from a traditional IRA to a Roth IRA while we can pay taxes on it at the 15 percent rate?
Go for it. Withdraw as much as you can from his IRA without pushing yourselves into the 25 percent bracket. Converting the withdrawals to a Roth IRA makes future investment returns tax-free.
Q. We are in the process of exchanging matured E bonds to HH bonds. We are having little success in getting accurate information on the minimum holding period for HH bonds prior to redemption. Can you help us?
The minimum holding period is six months for HH bonds 12 months for EE and I bonds. You can find this and other savings bond information at the Web site www.savingsbonds.gov
-Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg, FL 33731.