Don’t Forget to Pay Taxes on Your Investments
As you are probably well aware, today is Tax Day. And just like your regular income, you have to pay taxes on gains made from investments. You can offset some of these gains by claiming a capital loss. Also, it is worth noting that if you have a Roth retirement account (IRA or 401k), you won’t have to pay taxes on gains from your investments.
Long-term capital gains. If you have held an investment for more than a year, it is considered long-term. When you sell these investments, you pay long-term capitals gains taxes. These long-term gains are figured based on your income. You will pay more if your income is higher. There is a bit of a formula that comes in to play.
Short-term capital gains. These are gains from investments that you hold for less than 12 months. Taxes on short-term capital gains are more straightforward than their long-term counterparts. Instead, short-term capital gains are taxed as ordinary income.
Real estate sales. These are often lumped in with long-term capital gains. The idea is that you have to pay taxes on the positive difference in what you bought the house for and what you sold it for. The good news is that you can get an exclusion when you sell a primary residence, as long as the gain is under $125,000 ($250,000 if married). But watch out on investment property or a vacation home! There are different rules, although you can use an exchange to limit your tax liability.
Cash investments. You still have to pay taxes on cash investments. Take the interest on your savings account, for example. Whatever interest you earn on a savings account must be counted as part of your income. There is a place for you to report on the 1040 form.
Withdrawals from retirement accounts. When you withdraw money from a traditional 401k or a traditional IRA, you need to pay taxes on that money. Watch out! In some cases the withdrawals can bump you up a tax bracket.
Some of the rules surrounding how you pay taxes on your investments can be complicated and frustrating to figure out. I suggest that you consult an accountant or tax attorney when figuring out what you owe on your investments, and in finding out ways to reduce your tax liability.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss.
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investments, retirement accounts, Roth IRA
