Tax Planning

Learn the essentials of taxes for investors, including how earnings from different types of investments are taxed and short vs. long-term capital gains.

How are investments taxed?

Earnings from investments are taxed in different ways and at different rates—or sometimes not at all—depending on the investment itself.
Here's a quick overview.

In general, earnings from interest are taxed at ordinary income rates, just like wages. In contrast, earnings from appreciation—known as capital gains—may be taxed at lower rates. Some kinds of investment earnings are partially or completely tax-exempt, while investments in retirement plans such as a 401(k) or Traditional IRA are tax-deferred.

Understanding capital gains

Every investor needs a basic understanding of capital gains and how they are taxed. A capital gain occurs when you sell an investment such as a stock for a profit.

Taxpayers with adjusted income above the applicable threshold are subject to the 3.8% net investment income tax for their long-term capital gains and qualified dividends.

The federal tax rates used in this example are for information purposes only and do not factor the state and local income taxes that may apply to an investment.

How does tax reform affect me?

The Tax Cuts and Jobs Act of 2017 brought many changes to the tax code, which took effect in the 2018 tax year. Let's take a look at some important changes.

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