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Taxation of Investments
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Flashcards
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Royalty Income
Royalty income is generally taxed as ordinary income, and expenses related to the production of that income may be deductible.
Roth IRA Withdrawals
Qualified distributions from a Roth IRA are tax-free, but non-qualified withdrawals may be subject to taxes and penalties.
Annuity Income
Portion of annuity income may be non-taxable return of principal; the rest is taxed as ordinary income.
Real Estate Rental Income
Rental income is taxed as ordinary income, but expenses and depreciation can offset the income and reduce taxable income.
Dividends
Qualified dividends are taxed at lower capital gains rates, while non-qualified dividends are taxed as ordinary income.
Stock Options
Tax treatment varies between Incentive Stock Options (ISOs) and Non-Qualified Stock Options (NSOs).
Master Limited Partnerships (MLP) Income
MLP income can be tax-deferred as return of capital reduces cost basis; profits on sale are taxed as capital gains.
ETF and Mutual Fund Distributions
Distributions are generally taxed as capital gains or dividends, depending on the underlying assets' income.
Preferred Stock Dividends
Preferred stock dividends can be qualified or non-qualified and are taxed accordingly, with special consideration for financial institution dividends.
Foreign Investments Income
Income from foreign investments may be subject to foreign taxes, tax treaties, and U.S. taxation, potentially eligible for foreign tax credits or deductions.
Precious Metals
Capital gains on precious metals are taxed as 'collectibles' at a 28% maximum rate, higher than the long-term capital gains rate for other assets.
Capital Gains
Long-term capital gains are taxed at reduced rates, while short-term gains are taxed as ordinary income.
Peer-to-Peer Lending Interest
Interest earned from peer-to-peer lending platforms is taxable as ordinary income.
Life Insurance Policy Loans
Policy loans are not taxable as long as the policy is in force, but proceeds above the cost basis at policy surrender or lapse are taxable.
Traditional IRA Withdrawals
Distributions are generally taxable as ordinary income. Early withdrawals may incur penalties.
Savings Bond Interest
Interest from Series EE and I Savings Bonds is tax-deferred until redemption or final maturity and may be tax-free if used for education.
Commodity Futures
Commodity futures are subject to special tax rules, with 60% taxed as long-term capital gains and 40% as short-term, regardless of holding period.
Bond Interest (Treasury Bonds)
Interest from U.S. Treasury bonds is taxable at the federal level but exempt from state and local taxes.
Interest Income
Interest income is usually taxed as ordinary income, but some types such as from municipal bonds may be exempt from federal taxes.
Real Estate Investment Trusts (REIT) Dividends
REIT dividends are often taxed as ordinary income, but a portion may be treated as capital gains or return of capital.
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