• December 14, 2011

Trading in an IRA: Benefits Abound

by Guest Author

Taxes often come as an impediment to stock investors and traders. Capital gains taxes and record keeping involved in calculating them can be one of the largest burdens facing a stock trader. This is the crude reality that all successful stock traders face. Taxes and commissions eat away a good part of the profit made by you through stock investing. The more you earn, the more you have to pay in the form of taxes and commissions.

Keeping Record of Your Stock Trades

The most painful part of stock trading is that you have to maintain records of each and every trade you make in addition to calculating your gains when filing your returns. Moreover, the tax bills and fees of tax accountants can also be a nightmare.

For instance, if you hold a particular stock for more than a year, it comes under long term capital gains and the taxes for long term capital gains are capped at 15%. However, if you hold a particular stock for less than a year, it comes under short term capital gains tax. Short term capital gains are taxed at the same rate, but accounting for them is where it gets tricky.

When filing your tax returns, long term losses can only be used to offset long term gains and short term losses can only be used to offset short term losses. It can be a real headache in addition to the fact that you have to pay Uncle Sam.  Trading within your IRA account can help you not only avoid paying taxes today, but also allows you to avoid the complicated record keeping involved when filing your returns.

Reducing Trading Tax Gains With an IRA

Regarding taxes, the most effective way to reduce the burden of trading taxes is to trade within an Individual Retirement Account (IRA). This is the most popular way of reducing trading taxes and more importantly it is approved by the IRS. However, before making any decision in relation to your IRA, we recommend that you first consult with a professional tax advisor. Here we discuss some ways to avoid trading taxes.

• It is recommended that you must avoid trading in your taxable account. Instead, consider trading inside your IRA. This will provide you much-needed relief from the hazards of tax paying and tax reporting. When you trade inside your IRA, you do not have to report your gains or losses that you make from stock trading. In other words, it implies that you do not have to keep records of your gains and losses for reporting purposes. However, if you wish, you can still keep track of your stock trading gains and losses for your own portfolio management purposes.

• If you are a short term trader, trading in an IRA account is particularly beneficial for you. Outside the ambit of IRA, short term capital gains are taxed at 15% per year. Whereas, if you are trading in an IRA, short term capital gains taxes are deferred.

If you are not trading in an IRA, it is high time you consider it.

This is a Guest post from Marlon Powell who is a contributory writer associated with the Debt Consolidation Care Community. You can feel free to follow the Debtcc Facebook page http://www.facebook.com/debtconsolidationcare.

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Tags: capital gains taxes individual retirement account ira account long term capital long term capital gains stock investors stock trader stock traders stock trading inside IRA stock trading IRA Trading with IRA account