Capital Gains Taxes: 5 Basic Things to Know

Selling a stock at a gain may be cause for celebration. But depending on my income level in a certain year and the type of account in which I held the investment, I may owe as little as 0% or as much as 20% of my profit in federal income taxes.

In general, I should focus on finding the best stocks for my portfolio and ignore the tax consequences of buying, selling, and holding investments until its time to file my taxes.

But taxes, like investment fees, can erode my investment growth and detract from my net worth. So I should consider what sorts of taxes apply to my investments (if any) so I can devise and implement a tax-efficient investment strategy.

Investing and Taxes: Capital Gains and Dividends

When I started investing, I was concerned about picking the right stocks, mutual funds, and ETFs; matching any financial goals with the right asset allocation; and holding down investment fees. Those issues are important. But I also have learned not to overlook the impact of taxes on investment returns. That said, I can’t be so concerned about taxes that I’m paralyzed from making an investment move. But it helps to consider how investment decisions impact tax liability, both in the present and for the future.