Thinking about managing your tax bill before December 31? Download our 2024 Year-End Tax-Planning Guide here for tips and guidance.

Will I have to pay tax on my investment income?

Answer:

The taxation of your investment income depends on several factors, including the type of investment income you have (e.g., tax exempt, ordinary, capital gain, or tax deferred).

If you have municipal bonds, the interest they generate is typically exempt from federal taxation and state taxation in the state the bonds are issued. The interest may or may not be subject to state income tax in the state of your residence, if different from the state of issue. U.S. Treasury bills and certain types of government savings bonds generate interest that is typically subject to federal tax, but not state tax.

Of course, not all investments are tax exempt. Investment income is generated by either the income it produces during the ownership of the investment (e.g., interest, dividends, or rent) or the gain it produces when the investment is sold at an appreciated value. Investment income such as interest and rent is considered ordinary income and will generally be taxed according to your ordinary income tax rate. If you have investment income from the sale of a capital asset that is held for more than one year (e.g., stock or investment property), the income is generally considered capital gain and is taxed at long-term capital gains rates. Qualifying dividends are also taxed at long-term capital gains rates (dividends that don’t qualify for long-term capital gains rates are taxed at ordinary income tax rates).

Finally, you should know that tax-deferred investments (such as 401(k) plans) produce earnings and gains that are not taxed until later, when the money is distributed to you.
For more information, consult a tax professional.

Note: For tax years beginning after 2012, a 3.8 percent unearned income Medicare contribution tax may also be imposed on interest, dividends, capital gains and other investment income for individuals making more than $200,000 ($250,000, if married filing jointly).

 

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matter addressed herein.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018

footerlogo

Securities offered through Emerson Equity LLC. Member FINRA/SIPC. Advisory Services offered through EagleStone Tax & Wealth Advisors. EagleStone Tax & Wealth Advisors is not affiliated with Emerson Equity LLC. Financial planning, investment and wealth management services provided through EagleStone Wealth Advisors, Inc. Tax and accounting services provided through EagleStone Tax & Accounting Services.

For more information on Emerson Equity, please visit FINRA’s BrokerCheck website. You can also download a copy of Emerson Equity’s Customer Relationship Summary to learn more about their role and services.

Download our Form CRS (Client Relationship Summary) by clicking here.

Download Form ADV by clicking here.

Download Form ADV Part 2A by clicking here.

Click here to learn more about our Privacy Policy and Information Security Program.

Click here to for additional disclosures

Investment products & services are only available to residents of CO, DC, FL, KS, KY, MA, MD, NC, NY, PA, SC, VA & WA.

Licensed to sell insurance and variable annuities in the following States: DC, DE, FL, MD, ME, MI, NC, NJ, NY, PA, SC, & VA.