Tax Basics For Investors Aurora CO

Nothing is certain but death and ...well, you know the rest. It's hard to imagine a more unpopular topic than taxes, but it's important that you understand how Uncle Sam always gets his due when it comes to investing. After all, every dollar you pay unnecessarily in taxes is a dollar that won't be around to grow as part of your long-term plan for financial success.

Fortunately, a little bit of knowledge can go a long way towards minimizing the burden of taxes in your portfolio. Here are a few basic terms and concepts you need to know:

First, dividends and interest (such as from a money market fund or a bank account) are taxable as ordinary income when you file your tax return with the IRS. Reinvested dividends are taxed just as if you received them in cash.

If you still own a stock or index shares and haven't sold, you won't have to worry about taxes, even if the shares have increased a lot in value. But anytime you sell a security at a profit, you trigger a capital gain. Conversely, when you sell a stock and lose money, you register a capital loss. Capital gains are taxable when you file your annual return with the IRS on Form 1040 and Schedule D. (Sorry, you can't file using Form 1040-EZ if you have capital gains in the year.)

It's easy to figure the capital gains on any sale of stock, as well as the taxes that you'll pay the IRS (and possibly your state). First, you'll need to know the cost basis-how much you spent to buy the shares in the first place (including any fees or commissions). Subtract your cost basis from the amount you received from selling the shares (after any fees or commissions), and you'll know the amount of capital gains or losses. ...