Taxes on investments?

i want to start investing but i am unsure about the taxes. are the profits you make on investments taxed? for example if i started an account with vanguard to buy index funds, and one with scottrade to buy individual stocks--how would i know what taxes i owe on the profits i make from those investments?

for the record i am 20 years old and i am a dependent of my fathers. in other words, i do not file my own taxes. also because of certain circumstances i have never had a job in the united states so i have no experience with taxes. i hope this isn't a stupid question. thanks in advance.

Yes, they are taxed.

If you buy an index fund and hold on to it the only taxes you will have to pay are the taxes on the dividends until you sell it. They are taxed at a favorable rate of about 1/2 the normal rate. Taxes on long term capital gains, longe term being more than a year, are taxed at about 1/2 the regular rate.

Once you reach 21, you will have to file your own taxes anyway.

Dividends are taxed and realized capital gains are taxed. One of the great things about index funds is the small amount of realized capital gains. Regular mutual funds have a lot of realized capital gains every year unless there is a bear maket that year.

Your stock broker at the end of the year will provide you with 1099s for each stock you sold and for all dividends. It is your responsibility to maintain the buy slips that the broker will provide you on your purchases. You will have to keep them for 3 years beyond the date of filing your taxes for that year, if the IRS should want to audit you. I have been audited once in the past 40 years.

That is about it. I am curious though. If you have never paid taxes, where are you going to get the money to invest? Is your father going to give it to you?

Caution! Even index funds pay annual capital gains, and those are ALWAYS taxable! This "favorite answer" contains some pretty misleading information! Report It

Yes, any earnings on your investments are subject to state and federal income taxes.

start a IRA with Ameritrade Etc ; Convert to ROTH the pricipal in 2010 ; leave the gains in IRA. buy Dow stocks like IBM and keep until U retire or try Europian Index funds.

Your best bet is to consult with a tax advisor.

Anyway, from my experience, you pay taxes on your realized investment gains regardless of from funds or stocks, with some deduction. Let's start with an example say you open account with $10000, and you trade securities (stocks, funds, bonds, etc. ).

Realized gain is trades that are closed. Example,

7/5 Buy $500 worth of stock A + $10 commissions
9/23 Sell $550 worth of stock A + $10 commissions

Realize gain is: $550 - $10 - $500 - $10 = $30

Another example,

8/24 Buy $800 worth of stock B + $10 commissions
11/12 Sell $700 worth of stock B + $10 commissions
Realize gain is: $700 - $10 - $800 -$10 = -$120 (AKA realized loss)

By Dec 31,

Scenario 1: Your account balance is $15000 (gain from securities not closed), but your realized gain is -$90 ($30 - $120). You don't pay tax.

Scenario 2:
You made a killer trade on stock C.
9/12 Buy $3000 worth of stock C + $10
12/5 Sell $9000 worth of stock C + $10
realized gain is $9000 - -$10 - $3000 - $10 = $5800

Your total year 2006 realized gain is $5800 - $90 = $5710.

You would probably pay tax on $5710 - $5000 or $710, where $5000 is the standard individual deduction for year 2006.

There are also differences between long term gain and short term gain. Where there is a maximum tax rate (usually lower than the normal tax rate) on long term gains.

Long term gain = security held more than 1 full calendar year. Example, buy stock D on 3/5/2005, sell stock D on 4/6/2006.

Short term gain = security held less than 1 full calendar year or short positions. All trades on stocks A, B, and C above are short term.

Short positions can't be considered long term regardless of the holding period. Example, short sell stock D for $2000 on 4/1/2004, buy back stock D for $500 on 12/5/2006. The $1500 gain is still short term.

I think it's excellent that you want to invest at such a young age.

If you invest in mutual funds, you will get a tax statement at the end of the year. Give that to whoever does your taxes and they will take care of it for you.

You may not make enough money at first to require filing your own taxes. Again, your tax person will determine that.

There will come a time , however, that you may have to file and take your own dependent deduction.

If you invest in an IRA, you don't pay taxes until you retire.

You want mutual funds, not individual stocks.

You get yr end statements on what needs to be added to your tax return. Any buys or sales during the yr are either added or subtracted as well. Should not buy indiviual stocks if not on top of things except for speical semi-stocks like etfs. ADX PEO EWA EAF IAU are noth stocks & funds & may work for you.Feel free to contact via answers if any qs.

Hi, i suggest a great site with plenty of Issues related to your Investing and everything around it. it also provide clear and accurate answer to many common questions.

http://investing.sitesled.com/

I am sure that you can get your answers in this website.

Good Luck and Best Wishes!

I keep a spreadsheet on all of my investments. I calculate my gain and loss on each one. You will receive a 1099 in the mail to file your taxes.

Short-Term Capital gains will take 30% of your profit no matter what your tax rate is.

Long-Term Capital Gains can be as low as 8% depending on your tax rate.

Try to hold onto your investments as long as you can- at least one year and one day. If taxes are a big concern-try to put trade stocks or mutual funds in a tax sheltered account like a ROTH IRA or annuity.