Reinvesting profits back into business plan

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Reinvesting profits back into business plan

Written by James Hirby and Fact Checked by The Law Dictionary Staff Dividends are the periodic "bonus" payments that many publicly-traded companies make to their shareholders. While most American companies choose to pay dividends on a quarterly basis, many foreign companies pay out on a semi-annual or annual basis to avoid the tax implications of disbursing payments to large numbers of non-native shareholders.

If you own a mutual fund or individual stocks in your retirement portfolio, it's likely that you earn some of your investment income from dividends. Unlike the "capital gains" generated by the sale of a stock, the IRS considers dividend income to be "regular income" and levies taxes on it accordingly.

While a recent tax break temporarily reduced the income tax rates that investors must pay on dividends, it's likely that rates will rise in the near future.

Most financial gurus encourage long-term investors to reinvest any dividends that they earn.

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If you own a tax-sheltered retirement account that produces significant amounts of dividend income, this is sound advice. Studies have shown that reinvested dividends can magnify long-term investors' gains. To facilitate the reinvestment of dividends, many companies offer "dividend reinvestment programs.

Despite the fact that they're unusable for any purpose other than purchasing more shares of stock, reinvested dividends are still subject to taxation at the standard income tax rate.

For high-income investors, this rate is currently set near 40 percent. This tax applies whether the dividends are reinvested automatically through a DRIP or used to purchase shares of a different dividend-bearing stock. If you wish to avoid losing up to 40 percent of the dividends that you earn to the IRS, consider isolating your dividend-bearing investments in a tax-protected account like an IRA or savings plan.

Under these plans, both dividends and capital gains may accumulate tax-free. You'll only need to pay taxes on the investments contained in these accounts when you begin to withdraw funds in preparation for retirement or other major expenses.

In spite of the fact that they're subject to taxation, reinvested dividends can still boost your income by substantial margins.

Dividend reinvestment plan - Wikipedia

After all, non-reinvested dividends are equivalent to cash and produce no additional earnings after being taxed. More On This Topic.Paying back your shareholders. a company earning $1 billion a year in after-tax profits, with a 25 percent return on invested capital (ROIC) Individual investors, by not participating in a share repurchase, can defer taxes on the dividends and turn them into capital gains even years in the future.

reinvesting profits back into business plan

If your business is growing you would want to re-invest profits into the business rather than pay taxes. Here is how it works. Let's say you start your lemonade stand business.

A dividend reinvestment program or dividend reinvestment plan (DRIP) is an equity investment option offered directly from the underlying company. The investor does not receive quarterly dividends directly as cash; instead, the investor's dividends are directly reinvested in the underlying equity.

A business plan is a key document communicating the developmental objectives of your business. To be sure that this vital information is as functional, accurate and comprehensive as possible, be sure to include the following basics.

How to Write a Strategic Plan By Erica Olsen. Not to oversimplify how to create a strategic plan, but by placing all the parts of a plan into three areas, you can clearly see how the pieces fit together.

The three pieces of the puzzle are: Some mission statements include the business of the organization. Others explain what products or. A sales plan is a document used to establish objectives and to develop the strategies that will be used to achieve them.

This document establishes a path for revenue growth and other measurements for .

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