VISA Stock Update and Stock Taxes
April 19, 2008 – 06:00 amSo it’s been a little bit since I updated on the status of VISA. A couple weeks ago I met a new friend through another friend and he has a bit of a different view on what would happen with VISA stock. I am not sure if he invest in stocks the way I have in the past but we had different opinions on which way VISA stock would take. That’s perfectly fine, I expect some would have a difference in opinion, although most people still came to me for advice and some agree, I know some won’t.
General Rule of Thumb
That said, I told you that with stocks, like a few other investments, it’s a time dependent investment. Sure you can make money in the short run but essentially you want to go for the long haul. I want to note that the general rule of thumb is to buy a large number of different stocks rather than to buy any specific stock (I know that is contradictory to buying just VISA stock but it’s a much safer practice) and to buy consistently (rather than time when to buy in). These general rule of thumb ordeal do not apply to smart investors who have tons of research and are good at picking their investments, such as guru Warren Buffett. But you are not Warren Buffett so I lay out these guidelines for you to understand what may be best in your interest.
VISA Update
Anyway, I’d like to give an update on VISA stock. As you can see from this recent screenshot, VISA stock has gone up gradually yielding a hefty profit. As stated in my previous VISA IPO Stock Update post, opening private market rate was $44.00 but the first buy-in rate as far as I was aware was $55.00 per share (the price you and I could buy in). I landed at $58/share because I overslept a bit. In either case, stock has gone up to exactly $69.00/share (as of yesterday’s closing):
A quick math calculation shows I yield a hefty profit of about $3800! That’s for doing nothing more than a few minutes worth of work (literally) and waiting about a month (one month as of today). Not bad for extra side income. Of course this is only made possible because I had the capital to buy in (which most of you probably don’t have) and things went smoothly. This isn’t to brag but to illustrate a point that you can make money with smart investing. Was I right and my new friend wrong? Not necessarily. He did make some valid arguments, however I still believe there are exceptions that he missed and didn’t foresee. That doesn’t mean that I get everything right either. As with everything, you learn. (Note: the key is when you sell, that determines the real value of how much you actually net)
Building Capital
As I said before, there are a billion and one ways to make money in this world. Some takes money to make money, others don’t. But having capital sure does help in most cases. I started where many people are at today, with nothing or even worse off. It’s a matter of building your own resolve and getting yourself to meet your goals (much easier said than done; as I have stated in my Road to Success post). Financial freedom is achievable but you got to start somewhere and I offered my help to mentor people for free (or as much as I could online and with whatever free time I have; honest, no catch). About 6 people have contacted me for help. I do apologize for not getting back to you guys sooner as I have to pack up and get ready for the move and a horde of other errands I am doing. However I will respond once I have a bit more free time. Regardless, to build capital, you don’t have to generate a ton of income. Saving is a form of building capital. There are many others. While I did have a decent amount to invest in VISA stock, you don’t need to have a large amount of money or anything to get involved. Everyone starts somewhere, you should start now if you truly want to build your road to success too. One of people who contacted me for help brought up a question recently I thought I’d share and address in this post as well, since it has to do with stock and taxes.
The Reader Wrote:
My friend asked me a question relating to stocks/taxes that I didn’t know the answer, so I was wondering if you could explain to me about it. I was wondering how you are taxed when you own stocks. Are you taxed of how much gains are in your portfolio at the end of the year or the money you cash out?
My Response:
I’ll answer this in two parts. The first part, and the shorter answer, is typically you pay tax on stocks when you cash out. There are obvious rules where this doesn’t apply but usually it won’t apply to you guys so you only need to concern yourself with the selling part. Now for the second, longer answer.
There are two different types of tax structures involved with in stocks. Capital Gains tax and Dividend Tax. Let’s start with capital gains since dividend tax most likely won’t apply to you or your friend and I’ll explain why below once we get into explaining dividend tax. This is a term you often hear in real estate more than you do in stocks, but the simple short definition of capital gains is selling an asset for more than your purchase price, meaning the difference is profit or gain (this is what you get taxed on). Obviously if you sold an asset for less than your purchase price than it would be a loss therefore a capital loss (something you would still file as). Typically if you don’t sell your stock and you’re still holding onto it, you won’t get taxed until you do sell. However, it is important to note that there are two different types of capital gains tax and it is time dependent (just like in real estate).
They are short term capital gains and long term capital gains. Unlike real estate, if you sell within a year of obtaining the stock, it is called short term. If you sell after a year, it’s considered long term. In real estate, the threshold is two years. Unless the tax rates have changed, the long term capital gains tax is between 5% to 15% depending on your total income and the income bracket you fall under as categorized by the IRS. Short term capital gains get taxed at a rate of 25% or higher so it is often vital for you to try and sell in the long term market.
It is crucial to note that if you didn’t buy the stock and it was given to you as a gift or you inherited the stock, your “purchase” price is whatever the current market price is at, at the time of the transfer. You don’t obtain the original buying price of the previous owner unfortunately. Most people are unaware of this and screw themselves royally on the taxation. Of course the “purchase” price in this case is still 100% profit because you technically didn’t buy it. Anyway, if you or your friend ever fall in this category, be very careful on this.
Dividends tax is tax on well, dividends. Dividends are payouts a company provides to it’s shareholders. This is the reason why I say it probably won’t apply to you or your friend. If you should ever fall under this category for any reason, the current tax rate on this is 15%, however, that is due to a tax-relief provision currently in state, if this bill is not renewed this year, chances are the tax rate will be equal to that of regular income tax.
Please note that if you are and your friend are looking to get into the stock market, the IRS, in addition to all the tax rules I’ve listed, have what is called a “Wash Rule” in place. This is a specific rule specifying an investor can not sell a stock for profit only to buy back the stock within 30 days at a lower price to receive a gain. If you happen to buy back a stock within 30 days, the IRS will not allow you to offset for the capital loss resulting from the same stock in your taxes (loss because you would now claim ownership of the stock at a lower purchase price rather than at the higher purchase price).
One important thing to note, in your overall stock portfolio, if you have more capital loss than capital gains, you can file and offset up to $3,000 off your ordinary income. Any amount over this dollar amount, may be carried over to future files but you can not do more than $3,000 for the year it’s filed in (unless rules have changed; check accordingly).
These are the two primary ways I know of, but of course any tax advisor can probably give you more in-depth detail on how tax is broken down and possible have ways to offset more tax than I can possibly answer here. However this should have answered the question for your friend.
Conclusion
I hope this help answers some of the questions I’ve received from other readers. If at anytime you want to discuss anything, feel free to contact me.
Update
In other unrelated stock news, Google announced their Q1 earnings recently squashing all notions of spectators estimates that the value of the company and their stock are going down with record breaking income soaring. Thanks to this news, their stock recovered a massive 20% increase (went up by $89.87 per share!) and increased or restored the company’s worth by an additional $28 billion. For those who like to listen to Google stock, there you have it. Also a worthy note is this is the first time they’ve made such a significant amount of revenue outside of the US in advertising, more than half of their income report coming from internation search rather than US.
