Retirement plans, like
Debbie DiVito, CPA, Content Manager,
Whether you’re buying and selling stocks and bonds, investing on behalf of your child, or tapping your hard-earned retirement savings, if you buy, sell, or cash in on your investments, you’ll need to think about the tax implications. To better understand the potential tax implications of investing, we consulted H&R Block®. Have you bought, sold, or cashed in on investments in the past year? Keep reading to learn some of the ways your investing activities could affect your taxes, according to H&R Block.
Buying and Selling Investments
Investments—like stocks and bonds—are capital assets. According to the Internal Revenue Service (IRS), when you sell a capital asset, the difference between the cost basis (generally, how much you paid for it) and the amount it is sold for is a capital gain or a capital loss. You can use the cost basis to help calculate the amount of capital gains tax you owe on your tax return. For additional information on capital gains and losses, check out IRS Publication 550: Investment Income and Expenses, IRS Publication 551: Basis of Assets, and IRS Publication 544: Sales and Other Dispositions of Assets on the IRS website.
Retirement plans, like
Investing on Behalf of Your Kids
If you invest on behalf of your child (in a custodial account, for example), part of his or her investment income might be subject to tax at your highest marginal tax rate, depending on your child’s age and the amount of investment income. To learn more about the kiddie tax rules, read H&R Block’s Kiddie Tax Overview.
Tapping Retirement Savings
Retirement plans, like 401(k) plans, allow you to save for your future in a tax-advantaged way. But if you don’t follow the plan rules, you could receive tax penalties for contributing too much money in a year, withdrawing your money too soon, or failing to take required distributions from the retirement plan. In some cases, there are exceptions to these penalties. To find out the potential exceptions and learn more about the tax implications of tapping your retirement savings, check out H&R Block’s Tax Tip on Retirement Planning.
Remember that every situation is unique. If you’ve bought, sold, or cashed in on your investments in the recent past and want to learn more about the tax implications, consult the IRS website. You can also learn more on H&R Block’s website.