New to investing? Know these tax basics

Taxes on investment income can be confusing, especially since there are several ways investment income is taxed. An investor may be familiar with capital gains taxes.

Being well aware of all the tax liabilities your investments hold can minimize headaches and help you avoid a surprise bill from the IRS.

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Tax on Dividends

Generally, an investor should expect to receive form 1099-DIV from the corporation that paid them dividends, if the dividends amounted to more than $10 in a given tax year.

More About Capital Gains Tax

Capital gains are the profit an investor makes between the price of an asset when purchased, versus the price of an asset when sold.

Taxable Interest Income

This may be money generated as interest in brokerage accounts or interest from assets, such as bonds or mutual funds.

Net Investment Income Tax (NIIT)

The Net Investment Income Tax (NIIT), now more commonly known as the “Medicare tax”, is a 3.8% flat tax rate on investment income for taxpayers.

Tax-Efficient Investing

These strategies can include: – Diversifying investments to include investments in both tax-deferred and tax-exempt accounts.  – Exploring tax-efficient investments.