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Author: WilliamLipp Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75625  
Subject: Re: FF and a tax (lc) fool Date: 8/1/1999 11:50 PM
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asterisk Date: 8/1/99 10:41 PM Number: 12688
does this mean that prior to rebalancing my holdings, I should subtract 28% (or the equivalent for my tax bracket) and get the cash to pay for taxes before rotating into the next year's FF?

The profit from a Foolish Four will be Captital Gains for the stock increase, and income for the dividends received. Only the dividends are taxed at your tax rate. The capital gains are taxed at 20% (or 10% if your income is low enough). And only the gain, not the money you put in originally, is taxed.

So if you put $10,000 into the Foolish Four, got $200 in dividends and then sold the stocks after a year and a day for $12,000, you would owe 28% of the $200 in dividends and 20% of the $2,000 in capital gains - a total of $456. You will owe this, so you must come up with the money someplace. Whether you choose to remove it from the Foolish Four portfolio or choose to find the money someplace else is a matter of personal tax plannning.
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