Tax is a cost that reduces your return on wealth. You can improve your return on wealth by planning the tax on your return on free funds. Read more about international tax strategies by tax blogger, Michael Rosmer.
When you buy a security, it is born with a certain type of tax. You pay the tax when you have made money from capital gains, interest returns, dividends or anything else!
If you buy shares, you are likely to pay tax on realized stock income. When you buy bonds it is capital income.
There are, of course, exceptions, and you need to pay close attention to them when it comes to tax. Exceptions are often of great importance to how much tax you are going to pay in the end.
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The first DKK 2,000 you have in price gains on your bonds is tax-free if they are bought after January 26, 2010, and they are in Danish kroner. If they are purchased before that date, capital gains are tax-exempt if the bond is stamped in blue and in Danish kroner. Not simply – but important.
If you have a return above DKK 2,000 on your bonds, then it is positive capital income. A positive capital income that is set off against any negative capital income (interest expenses). This means that the tax on the return on the bonds can vary from approx. 25% (at large negative capital income) to 42% (at high positive capital income).
Shares purchased before 2006 can also be taxed differently. It may be that you have a small stock of listed shares purchased before 2006 with a purchase price of DKK 136,600 per share. person. In that case, future gains will be tax-free, but losses cannot be deducted or carried forward.
Check your tax before investing
These examples are just a small sample of the circumvented rules and exceptions on tax on income from securities. It is therefore crucial that you, as far as possible, run this checklist to get the best out of your investment.
- Check the tax on the return and the ability to deduct losses before you buy security. As a minimum, you should not pay a higher tax on a positive return than you can deduct if the return is negative.
- Always make sure that before the end of the tax year (the calendar year for the free funds) you have checked for any special options you can use to reduce the tax on the year’s return.
- Many of the favorable low tax options must be used each year to get the most out of it. This applies, for example, to the limit for low share income taxation.
Always check your final tax before selling all or part of your securities portfolio. Rebalancing the risk in your portfolio often results in a tax, you should not be surprised. Remember, however, that it is better to pay tax on a gain than to lose money because you have taken too much risk.
The complex tax conditions do not make it easier to be an investor in the securities market. There is a big difference between doing the right thing and the wrong one, and it may be worth checking out the rules.