Know the Taxes Associated with Investing

Find out how taxes may affect your investments, wealth, financial planning, and goals.

Capital Gains

These are taxes on profits made from selling an investment. They apply to investments like stocks, bonds, mutual funds, crypto assets, real estate, and more.

• Long-term capital gains taxes apply to investments held for at least one year. They are generally taxed at 0%,15%, and 20%, based on your taxable income and filing status.
• Short-term capital gains taxes are levied on investments held less than a year. The gains are added to your income and taxed from there.

Dividend Tax

Dividends are shares of profits paid out to a company’s shareholders. They are usually associated with stocks but can vary across the different accounts that house investments. In California, all dividends are taxed as part of ordinary income.

Interest Income Tax

This is tax on the interest you earn on a deposit account like a checking or savings account, a certificate of deposit, or on dividends earned on an account held at a credit union. Interest income tax is also applied to annuity contracts.

Real Estate Tax

This type of tax is based on the value of your property. It may vary based on the local jurisdiction (state, county, city, etc.) where the property resides.

Estate Tax

An estate tax is a federal and/or state tax applied to an estate before it is transferred to a beneficiary. Estate taxes are based on the estate’s fair market value and have set exclusion limits. California is one of 38 states without an estate tax.

Withdrawal Tax

If you participate in a 401(k), your monetary contributions do not incur taxes. But if you make an early withdrawal before the age of 59, you could incur hefty state and federal taxes. You’ll also incur a 10% penalty from the IRS during tax season.

Similarly, if you have a 401(k) and do not withdraw by age 73, you may incur federal and state taxes on your account.

Funded by a grant from the Investor Protection Trust.