Your Cheat Sheet to Taxes for Investors
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70% of all the traffic across the entire internet is entertainment, and one of the biggest drivers is live sports. Comcast's Next Generation Network delivers the best live sports for Xfinity customers with Enhanced 4K, which delivers Dolby Audio and video at the lowest latency, so customers never have to miss a moment. Learn more at comcastcorporation.com slash network. Here's your money briefing for Tuesday, February 25th. I'm Mariana Aspuru for The Wall Street Journal.

If you hold assets in taxable accounts, you could be eligible for favorable tax rates on investment income like capital gains and many dividends. But with the rules, details matter and could save you money.

If you have held an investment in a taxable account longer than a year, then it will be taxed at lower long-term capital gains rates. If not, it will be taxed at the same rates as your wages, as your ordinary income. So maybe your rate on your wages is the top rate is 24%. Well, the same rate on a long-term capital gain would be 15%. That's a big difference.

We'll talk with Wall Street Journal reporter Laura Saunders about the key considerations you should make before filing taxes. That's after the break. 70% of all the traffic across the entire Internet is entertainment. And one of the biggest drivers is live sports. This year, we saw the biggest consumption in Internet history driven by sports streaming. And the top five days all happened in the last few months.

Comcast Next Generation Network delivers the best live sports for Xfinity customers with enhanced 4K, which delivers Dolby audio and video at the lowest latency. Learn more at Comcast Corporation dot com slash network. The IRS's rules about paying taxes on your investments could work in your favor if you know how to use them. Wall Street Journal tax reporter Laura Saunders joins me.

Laura, let's start off with someone who sold assets in a taxable account, like individual stocks, index funds, or ETFs, for example. What's the first thing they should consider before filing their taxes?

Well, it's a very different world from if you sell things in a tax-deferred account, like a retirement account, like an IRA. You will owe taxes on any gains. You look at the price you bought it for, you look at the price you sold it for, and that would be your taxable gain.

And you owe tax on that. And there are all kinds of different rates it could be, but you have to think about taxes a lot more with taxable accounts than you do with retirement accounts. But the good news there is that the rates are often lower. Right.

So that's something to keep in mind, too. Yeah. And how do you weigh your overall losses versus your gains when you're filing taxes? Well, you could have a gain or you could have a loss. Like if you bought at $10 and you sold at $20, you'd have a $10 gain. If you bought at $10 and sold at $5, you'd have a $5 loss.

The sort of bright lining of the dark cloud is that you can subtract your losses from your gains and have fewer taxes to pay on your gains. That's offsetting, which you talk about in your story. Yeah, that would be offsetting. Let's just say you have a big loss.

That's not great, but you have one. The good news there is that it carries over forever to offset gains you have. And in meanwhile, it can offset, subtract from $3,000 a year of ordinary income like wages.

So that's a little bit of help too. But you have to keep detailed accounts of like everything that happened, correct? You do, you do. Or maybe your broker keeps them for you, but you should know where the records are. How are sales of investments that you've held for a short period of time taxed differently than ones that you've had for a long time? If you have held...

an investment in a taxable account longer than a year, then it will be taxed at lower long-term capital gains rates. If not, it will be taxed at the same rates as your wages, as your ordinary income. Now let's think about the difference. So maybe your rate on your wages is the top rate is 24%. Well, the same rate on a long-term capital gain would be 15%.

That's a big difference. Another consideration for filers to make is the 3.8% surtax on net investment income. How might this affect someone who qualifies for it? It would affect them by making them very unhappy. Also, it often surprises them. The thing is, in 2013, Congress added this provision. If you're a single filer and you're modified adjusted gross income,

is $200,000 or more, then you would have an extra 3.8% tax to pay on your net investment income. If you're a joint filer, a married couple, then it applies if your income is $250,000 or above. It doesn't apply to things like

withdrawals from IRAs, but that income could help lift other income, interest income, dividend income, things like that. So it is affected by it. So this becomes another thing to plan for, another tax puzzle to solve. Let's say that somebody had some stock and it had a bunch of gains in it.

and they wanted to sell it to maybe raise a down payment for a house or something like that. Well, it might be that if they sold all of it before year-end, then that would push them into the 3.8% tax. But if they sold some of it in December and some of it in January, they would stay below the income thresholds. So that's something to be aware of whenever you're selling a taxable asset. If a little planning would save you money, try. Okay.

Let's talk about crypto. For anyone who's held cryptocurrency this year, how are gains on that taxed? If they've held it this year or any year...

It's taxed like rates on a stock. If you buy it at $100 and sell it at $200, then you have $100 of gain. And if it's held for less than a year, it'd be taxed at ordinary income rates, which are higher. And if it's been held for more than a year, then it would be taxed at long-term capital gains rates. So pay attention to that difference.

People think of it as a currency, but it's not taxed like currencies are taxed, currency trading. It's taxed like an investment asset. And people think of it as currency because they use it sometimes to buy things like boats, houses. How is that taxed? Let's say you bought some crypto.

Maybe $50,000 worth of crypto and it went up to $90,000, the value. And you thought, I'm going to buy the boat with my $90,000 of crypto. That's what it costs. Well, you might hand the crypto over to the boat dealer, but you have a $40,000 taxable gain.

It's like if you gave the boat dealer some shares of Exxon stock that you owned. There's a transfer and there's a tax on that transfer. You don't get out of it just because you hand over the crypto. What are other things that crypto holders should be aware of when they're reporting their assets to the IRS? Well, that they should report them.

A lot of people that have crypto just kind of don't think taxes should apply to them. They don't want to know about all the details. And so the IRS has put a sentence on the front page of the tax return right up front and center. During this year, did you buy or sell or trade crypto, basically? And you have to answer yes or no. And if you answer no, and you did, and they find out about it, you've got a big problem because you've lied.

What about investments that you've inherited from someone who's passed away? How are those taxed? Well, let's talk about two cases here. Investments that someone has given to you and investments that you've inherited because they're very different. If you inherited it, that's the better thing because on the date of death, the value rose to the market value and no capital gains tax is due. Let's just say that

Grandma had some stock. She bought it five, and it rose to be $100 a share. Thank you, Grandma. Thank you, Grandma. Now, if Grandma had sold it during her life, she would have owed tax on $95 of appreciation. Well, if you inherit it from her, you inherit an asset worth $100. So therefore, if you go to sell it,

At 101, you only have $1 of gains. So you get to skip out on a lot of tax. It's a benefit that's used heavily by billionaires and the very wealthy. Now, the other case, what if grandma gave you some of that stock while she was alive?

In that case, the so-called basis, the cost, carries over to you. So let's say she gave it to you when it was worth $100. Then when you sell it, your basis would be $5. So you would have a $95 gain to pay taxes on, more or less. So that's how an inheritance can be better than a gift. That's WSJ reporter Laura Saunders. And that's it for your Money Briefing.

This episode was produced by Zoe Culkin with supervising producer Melanie Roy. I'm Mariana Aspuru for The Wall Street Journal. Thanks for listening. 70% of all the traffic across the entire internet is entertainment. And one of the biggest drivers is live sports. This year, we saw the biggest consumption in internet history driven by sports streaming and large game downloads. And the top five days all happened in the last few months.

Comcast's next-generation network delivers the best live sports for Xfinity customers with enhanced 4K, which delivers Dolby Audio and video at the lowest latency, so customers never have to miss a moment. Learn more about Comcast's network innovations at comcastcorporation.com slash network.