Certain qualified dividends are taxed at the lower capital gains rates: 20% for taxpayers in the 39.6% tax bracket, 15% for those in the 25%-35% brackets, and 0% for those in the 10% and 15% brackets. Ordinary dividends, however, are taxed at the taxpayer's ordinary income tax bracket. The interest from most municipal bonds is exempt from federal, and sometimes state, income taxation.
Capital gains on investments that are held for more than a year (called long-term capital gains) are taxed at a lower rate than other forms of income. Capital gains are taxed at 20% for taxpayers in the 39.6% tax bracket, and 15% for taxpayers in the 25%-35% brackets. For those in the 10% and 15% brackets, capital gains are currently taxed at 0%.
Another important tax implication is centered on capital losses—the opposite of capital gains. If you lose money on your investments, you are able to deduct up to $3,000 of your losses in excess of any gains from your taxable ordinary income. Losses over $3,000 may be carried over to future years. This explains why so many people sell their stocks in December. Investors often choose to unload securities that are losing money in December in order to take advantage of this deduction on their income tax forms.
Neither New York Life Insurance Company, nor its affiliates or representatives provide tax, legal or accounting advice. Please contact your own professionals.