WSJ Your Money Briefing - Your Cheat Sheet to Taxes for Investors

Episode Date: February 25, 2025

Investors with assets in taxable accounts could be eligible for favorable tax rates on investment income like their capital gains and dividends. Wall Street Journal reporter Laura Saunders joins host Ariana Aspuru to discuss what investors need to know before filing their 2024 tax return.  Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

TD Direct Investing offers live support. So whether you're a newbie or a seasoned pro, you can make your investing steps count. And if you're like me and think a TFSA stands for Total Fund Savings Adventure, maybe reach out to TD Direct Investing. 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 percent. Well, the same rate on a long term capital gain would be 15 percent. 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. 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. 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 it 10 and you sold it 20, you'd have a $10 gain. If you bought it 10 and sold it five, you'd have a $ or you could have a loss. Like if you bought it 10 and you sold it 20, you'd have a $10 gain. If you bought it 10 and sold it five, 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. 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 the 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 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 term. 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 your 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, 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 a100 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 at $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 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 stocks she bought at five and it rose to be a hundred dollars a share. Thank you grandma. Thank you grandma. Now if grandma had sold it during her life she would have owed tax on ninety five95 of appreciation. Well if you inherit it from her you inherit an asset worth a hundred dollars. So therefore if you go to sell it at a hundred and one you only have one dollar of gain 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? Well 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 a hundred dollars. Then when you sell it your basis would be five dollars. So you would have a ninety five dollar 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 Kolkin with supervising producer Melanie Roy.

I'm Arianna Aspuru for The Wall Street Journal. Thanks for listening.