capital gains and dividend income

investing for beginners

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what's in this lesson?

The money you make from investing isn’t all the same–and there are important distinctions between different types of income (capital gains and dividend income) that can affect you.

capital gains and dividend income

investing for beginners

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capital gains and dividend income

investing for beginners

The money you make from investing isn’t all the same–and there are important distinctions between different types of income (capital gains and dividend income) that can affect you.

Throughout this course we’ve discussed the different ways you can invest and we’ve touched on different investing strategies–value and growth investing. As a refresher, value means you’re looking more for reliable profits from a company so you can get paid strong dividends, and growth investments mean you’re looking for the stock price to increase due to company growth such that you can sell for gains in the future.

 

The difference between these investing strategies extends beyond how you choose to allocate your money, but also includes the different types of income that these investments generate for you from a tax perspective. Btw, check out our lesson on the different types of income in our taxes course!

 

Capital Gains

If you buy a stock and then sell it at a price higher than you bought it, the profits you make will be taxed as what’s called “capital gains.” If you held the stock for more than a year, this tax rate will generally be lower than your income tax rate. If you held that stock for less than a year before selling, you’ll be taxed on the profits at your income tax rate. As long as you don’t sell the stock, you won’t be taxed on it, btw.

 

Dividends

If you are paid dividends from a company, those will be taxed at your income tax rate–which is generally higher than your capital gains rate. Keep this in mind as you make your investing choices!

 

Source(s): Investopedia

what's in this lesson?

The money you make from investing isn’t all the same–and there are important distinctions between different types of income (capital gains and dividend income) that can affect you.

Transcript

Throughout this course we’ve discussed the different ways you can invest and we’ve touched on different investing strategies–value and growth investing. As a refresher, value means you’re looking more for reliable profits from a company so you can get paid strong dividends, and growth investments mean you’re looking for the stock price to increase due to company growth such that you can sell for gains in the future.

 

The difference between these investing strategies extends beyond how you choose to allocate your money, but also includes the different types of income that these investments generate for you from a tax perspective. Btw, check out our lesson on the different types of income in our taxes course!

 

Capital Gains

If you buy a stock and then sell it at a price higher than you bought it, the profits you make will be taxed as what’s called “capital gains.” If you held the stock for more than a year, this tax rate will generally be lower than your income tax rate. If you held that stock for less than a year before selling, you’ll be taxed on the profits at your income tax rate. As long as you don’t sell the stock, you won’t be taxed on it, btw.

 

Dividends

If you are paid dividends from a company, those will be taxed at your income tax rate–which is generally higher than your capital gains rate. Keep this in mind as you make your investing choices!

 

Source(s): Investopedia

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