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One of the biggest issues investors have to deal with is taxes. Most types of investments are subject to some type of tax. Dividends from stocks and income from most bonds can be taxed at your regular income tax rate. Capital gains from selling stocks and bonds at a profit is also taxed by the government. It is important for investors to focus on after tax returns - net returns after taxed have been deducted. Investors can often achieve a higher after-tax return through techniques such as purchasing index funds (less turnover = less capital gains taxes) and municipal bonds (not taxable by the federal government). Investors should also take taxes into consideration when making sell decisions. Capital losses on investments can be used to offset capital gains from the same year.
Income Tax
Income taxes are an assessment levied on individual or corporate income. Since 1919 most U.S. states have adopted the tax, as have several cities, beginning with Philadelphia (1939). Investors should be aware that whenever they realize income of any kind, including capital gains on an investment, Uncle Sam gets a portion of the revenues-in the form of income tax!
Capital Gains Taxes
Levy on profits earned by the sale of capital assets, such as stocks, bonds, and real estate. In the U.S., long-term gains on assets held for one year or more may be taxed at a somewhat lower rate than short-term gains if total taxable income is within a certain range. Thus day traders who are in and out of positions in moments have greater liabilities than the longer-term investor.
Performance information for other Zacks’ portfolios and strategies is available at: http://www.zacks.com/performance
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