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Taxes On Your Investments

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420x316-grad-lee Dee Lee
Dee Lee is a Certified Financial Planner who received a diploma in...
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BOSTON (CBS) – Happy Valentine’s Day!

Capital Gains: This is the money you make if there was a profit when you sell an investment!

Investments that you hold for less than a year and then sell are considered short term gains. And the profit is taxed as ordinary income.

Investments that you hold longer than one year are taxed at a lower rate, a long term capital gains rate. If your gains come from stocks, bonds or mutual funds they will be taxed at either zero percent, 15% or 20%, depending on your marginal tax bracket.

If your capital gain comes from investment real estate it will be taxed at 25%. And if you sold your collectibles such as oriental rugs or antiques and made a profit your capital gains tax rate is 28%. If you sold your household stuff at a yard sale last summer you will not owe taxes on the stuff you sold.

In addition, high income taxpayers may have a 3.8% unearned income Medicare Contribution Tax applied to their capital gains and other net investment income.

Capital Losses: These are losses on your investments. You use your losses against your gains. If you have a net loss you can use up to $3,000 against other income and you get to carry any excess loss forward which is a good thing.

Dividends: Corporations share their profit with their shareholders when they pay dividends from either current income or retained income.

The tax rate on dividends for most taxpayers will be 15% and for taxpayers in the lowest tax brackets it may be 0%. Earn over $400,000 as an individual or $450,000 married and you will pay 20%.

Not all dividends qualify for the lower rate. Dividends paid by money market mutual funds or a Real Estate Investment Trust (REIT) generally do not qualify and will be taxed as ordinary income.

Distributions paid out by co-op banks, mutual savings banks, credit unions, savings and loan associations are often called dividends but are really interest.

One more thing:

Capital Gains & Dividend Tax Rates

Tax Rate Single Married
0% Up to $36,250 Up to $72,850
15% $36,250 to $400,000 $72,850 to $450,000
20% Over $400,000 Over $450,000
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