Your investing strategy is primarily influenced by such factors as your financial goals, time horizon, and risk tolerance. Even so, it might be wise to consider the tax implications of your investment decisions, especially when they involve assets that are not held in tax-advantaged retirement accounts. Tax-Conscious Investing The tax code treats long-term capital gains and qualified dividends more favorably than ordinary income (wages or interest from bonds and savings accounts). Generally, dividends on stocks that are held for at least 61 days within a specified 121-day period are considered “qualified” for tax purposes. Long-term capital gains are profits on investments held longer than 12 months. Nonqualified dividends and short-term capital gains are taxed as ordinary income. High-income taxpayers may also be subject to a 3.8% net investment income tax on capital gains, dividends, interest, royalties, rents, and passive income if their modified adjusted gross income exceeds $200,000 (single filers) or $250,000 (joint filers). Realizing a large gain not only could trigger capital gains taxes but might push an investor’s adjusted gross income into a higher tax bracket.
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