usure about taxes please help me out?

Question

ok so i make about 30,000 a yr...yay me lol. ok so i've done doing a lot of research with high risk stocks...i have a lot money in safe places but i just wanna try it out....so i'm gonna take 5,000 and invest it in a company that lets say is selling stock for 0.0388 a share....so if i do that and it goes up to lets say 0.30 i'd make a lot of money but what about taxes? how much would i have to pay? i think 15% but i really dont know. also if it only went up to like .06 it would still be almost double my money. one more thing i asked earlier and its about this stock. the market value is 0$ what kind of affect is that going to have on it if any? please help if this is as good a risk as it seems that would be great.

Answer 1

You would be investing in "penny stocks" which is a really bad idea. I've never done it, and people have made money doing this, but it is a generally dumb thing to do for a couple reasons.

Penny stocks are listed on the "pink sheets" and are not on the major exchanges (NYSE or Nasdaq). Therefore they need not comply with the Federal SEC rules. The SEC rules are your friend. Because of this, investors in penny stocks are victimized by "pump & dump" schemes perpetrated by con-artists. While there are good stocks on the pink sheets, how do you know which is which??

If you have a longer time horizon, then you should invest in high quality stocks of the slow and steady variety; ones that pay higher dividends. Examples: Pepsico (PEP), Coke (KO), Altria (MO), Chevron (CVX), Bank of America (BAC), Proctor and Gamble (PG) and so on. Then automatically reinvest the dividends back into more shares in a DRIP program.

The markets move up and down, so don't invest all at once. Invest pieces of cash over time, a little more when the market is down, a little less when it is up; and you will win big. In 20 or 30 years you will have made massively more than a bond or CD investor.

Taxes: Right now you will pay a 15% federal tax rate IF you hold the stock 1 year or more. Except, if you are in the lowest of the two income tax brackets you only need pay 5% fed. tax. If you hold the stock for less than 1 year then you pay the same tax as ordinary income.

These above fed. tax rates expire in 2010. Who knows what we will have then?

You also need to pay state taxes if you have any. California taxes all cap gains and dividends as ordinary income. Argghh!

Answer 2

I believe you are right about the 15% for long term capital gains. For short term capital gains, they are taxed at ordinary income. But of course check with a CPA on this.

Penny stocks are the junk heap of the stock market, so don't count your capital gains until they are hatched.

I bought a penny stock in the early 90's. Lost about 6k in it. While I still buy stocks, I no longer buy penny stocks.