A solid investment strategy can help you grow your wealth and prepare for the future, but no matter how successful the strategy is, it will affect your taxes at the end of the year. While no one likes to add to the burden of tax preparation, understanding how investments will affect your taxes can help you be better prepared. The wealth advisors at Evergreen Advisors in Covington, KY, explain how some of the most common investments affect your taxes.
Selling Investments Affects Your Total Income
Most often, if you sell an investment, you’ll have to pay tax on the profits earned. This profit is known as capital gain; however, the amount of tax you’ll pay on the shares is based on how long you’ve owned them. If you sell an investment that you’ve owned for less than a year, this short-term capital gain is taxed at a rate up to 35 percent. If you’ve owned an investment for more than a year, the profit earned is considered a long-term capital gain and is taxed at a rate no higher than 15 percent.
Dividends and Interest Adds to Your Income
Stocks and bonds pay out dividends and interest, which count towards your income earned for the year. Any payments you receive from the investments are subject to income tax in whichever tax bracket you qualify for that year. It’s important to note that you can avoid paying taxes on dividends if you choose to reinvest the amount back into the company.
How to Handle Losses
Investments come with some degree of risk. Depending on the market, you may end up selling a share at a loss. While it may seem like a financial blow, it can help offset the amount of taxes owed on other investments. If you sell a share at a loss, you can claim that loss against any taxes owed on other dividends or sold shares.
Evergreen Advisors has helped people manage and grow their wealth so they can be better prepared for the future. Whether you need help saving for your child’s college education, or are looking for financial advice, the team at Evergreen Advisors can help. For more information on their services, visit their website or call the firm at (513) 784-9150 to schedule a consultation today.
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