Made some money off your investments last year? That’s great. But Uncle Sam is going to want a cut.
Investment income can be taxed in different ways, so here’s a quick refresher on taxes investors could face.
Capital Gains Tax: If you sold assets (stocks, for instance) for more than the purchase price, the profit is called a capital gain. There are two types of capital gains: short-term and long-term.
Short-term capital gains are profits from selling assets held for less than a year. These are commonly taxed at your ordinary income tax rates. Long-term capital gains apply to assets held for (you guessed it) more than a year. These are typically taxed at capital gains tax rate.
Tax on Dividends: If you own stocks and received a dividend from a company, you’ll likely have to pay taxes on it. There are two types of dividends: “qualified’ and “ordinary”, and they are taxed differently.
Ordinary dividends are taxed as income, while qualified dividends are taxed at the capital gains rate.
Taxable Interest Income: If you earned interest, whether in a savings or brokerage account, or on certificates of deposit (CDs) or bonds, that’s typically taxed as ordinary income.
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