Understanding taxes on your investment accounts

Understanding taxes on your investment accounts

At this time of year many Americans are thinking about taxes. Even if you’ve already filed your 2016 returns, it’s a good idea to start thinking about next year. We know that figuring out taxes on your investments can be confusing, so here are some things you should know.   Understand the taxes you pay on investment income When you sell a stock or mutual fund at a profit, you will usually get taxed. If you sell within the first year you own that security you’ll pay tax at ordinary rates, which could be as high as 39.6% depending on your income level. But the tax code is designed to encourage long-term investing, so if you hold that same security for longer than a year, you’ll pay a lower rate — a maximum of 20% for most stocks and funds. Strive for long-term investing in taxable accounts and minimize frequent trading whenever possible. Keep in mind that you’ll also pay tax on mutual fund distributions even if you don’t sell any shares of the fund yourself. When the portfolio manager sells some of the fund’s holdings, as happens in the normal course of managing the fund, the taxable gains are

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