As 2024 is coming to a close, here are a few things to remember as it relates to taxes related to your investments
As you probably learned early in life, when you make money, you usually owe taxes. This is also true of money you make on your investments.
Generally speaking, taxes will be due at the time you earn the money. This holds true for general investing accounts, such as an individual brokerage account or joint brokerage account. However, if the investment earnings or gains take place within a retirement account, such as an IRA, you won’t owe taxes until you take the money out of the account.
See below to see how dividends, capital gains, and interest are taxed within general investing accounts (not retirement accounts).
- Interest income is taxed at ordinary tax rates. There is no special tax treatment on interest income.
- Dividends can be “qualified” for special tax treatment. Tax rates on qualified dividends are subject to a 0%, 15%, or 20% tax rate, depending on your income. Dividends that are nonqualified are taxed at ordinary tax rates.
- Capital gains are “realized” when you sell investments at a gain. Long term gains (investments held for more than 1 year) are subject to a 0%, 15%, or 20% tax rate depending on your income. Short term gains (investments held for 1 year or less) are taxed at your ordinary income tax rate.