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Taxation for Investors

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Qualified Dividends

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Dividends that are subject to lower tax rates as they meet specific criteria set by the IRS.

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Marginal Tax Rate

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The rate of tax applied to your last dollar of taxable income.

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Short-Term Capital Gains

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Profits from the sale of an asset held for one year or less, taxed at ordinary income tax rates.

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Municipal Bonds

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Bonds issued by state and local governments; the interest on these bonds is often exempt from federal income tax.

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Tax Deduction

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A reduction of income that is able to be taxed, which results in a lower overall tax bill.

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Wash-Sale Rule

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A tax regulation that prohibits a taxpayer from claiming a loss on the sale and repurchase of identical stock or securities within a 30-day period.

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Deferred Tax Asset

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A tax reduction due to allowable deductions or credits that a company will be able to use to reduce future tax liability.

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Capital Gains Tax

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A tax on the profit realized from the sale of a non-inventory asset that was greater than the original purchase price.

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Foreign Tax Credit

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A non-refundable tax credit for income taxes paid to a foreign government as a result of foreign income tax withholdings.

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Net Investment Income Tax (NIIT)

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A 3.8% tax on certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts.

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Long-Term Capital Gains

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Profits from the sale of an asset held for more than one year, subject to lower tax rates than short-term gains.

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Retirement Account Rollover

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The process of transferring funds from one retirement account to another, often without incurring tax penalties.

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1031 Exchange

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A swap of one investment property for another that allows capital gains taxes to be deferred.

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Capital Gains Distribution

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Payments made to mutual fund shareholders from gains realized on the sale of securities in a mutual fund's portfolio.

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Cost Basis

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The original value of an asset for tax purposes, usually the purchase price, adjusted for stock splits, dividends, and return of capital distributions.

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IRA Contribution Limits

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The annual limit set by the IRS on the amount of money that can be contributed to an Individual Retirement Account (IRA).

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Alternative Minimum Tax (AMT)

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A supplemental income tax required in addition to baseline income tax for certain individuals, estates, and trusts that have exemptions or special circumstances allowing for lower levels of regular tax.

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Tax-Loss Harvesting

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The practice of selling securities at a loss to offset capital gains tax liability.

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Dividend Received Deduction (DRD)

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A provision that allows companies to deduct dividends received from their investments in other companies from their taxable income to avoid double taxation.

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Tax Bracket

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A range of incomes taxed at a given rate, which typically increases progressively with higher income.

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