It’s almost that time again! Yes, Spring is quickly approaching but with it, the often dreaded tax season is also upon us. However, it doesn’t have to be a time of stress. Here are five things for investors to keep in mind during tax time:
- Capital Gains Taxes
- Dividend Income
- Interest Income
- IRA Withdrawals
- Taxes on Gains from Selling a Home
1. Capital Gains Taxes:
When selling investments, such as stocks or mutual funds, investors may be subject to capital gains taxes. Short-term capital gains (gains on investments held for one year or less) are taxed at the investor’s ordinary income tax rate, while long-term capital gains (gains on investments held for more than one year) are taxed at a lower rate.
2. Dividend Income:
Dividend income is generally taxed at the investor’s ordinary income tax rate. However, there is a special tax rate for qualified dividends, which are dividends paid by certain corporations that meet certain requirements. These dividends are taxed at rates similar to capital gains.
3. Interest Income:
Interest income from investments, such as bonds and CDs, is generally taxed at the investor’s ordinary income tax rate. However, there is a special tax rate for municipal bond interest, which is interest earned on bonds issued by state and local governments. These are generally exempt from federal income taxes and often exempt from state income taxes depending on the issuer and investor’s home state.
4. IRA Withdrawals:
Withdrawals from traditional IRAs are generally subject to income taxes. Withdrawals from Roth IRAs are not subject to income taxes, provided that the withdrawal is a “qualified distribution.”
5. Taxes on Gains from Selling a Home:
If an investor sells a home, they may be subject to taxes on the gain from the sale. To avoid paying taxes on the gain from the sale of a home, the investor must have owned the home for at least two years, and if it has been owned longer than that, must have lived in it as their primary residence for at least two of the last five years.
