Taxes and nonqualified brokerage account

[Anonymous]

Could someone explain to me in the most basic way what the tax implications are if I were to open a nonqualified brokerage account if you're in the 24% bracket?

I *have* done a google search, but can't find anything that makes this simple enough for me to truly understand.

[Anonymous]

are you asking about short vs long term capital gain?

[Anonymous]

What are you investing in? If you buy a single stock you will owe annual tax on dividends (if any) and cap gains (if any) when you sell it.

Same is true for index funds, although with a lot of stocks in the index it’s likely at least some of them will pay dividends— probably around 2% is a good estimate, maybe less.

If you buy an actively traded fund you may owe more especially if you hold it as a fund not an etf because funds have to pay out any gains on stock sales.

[Anonymous]

I thought there were qualified dividends and non qualified dividends. I believe qualified are taxed at 0, 15 or 20% depending on your tax bracket while non qualified would be taxed at your regular tax bracket rate.

[Anonymous]

Anonymous wrote:What are you investing in? If you buy a single stock you will owe annual tax on dividends (if any) and cap gains (if any) when you sell it.

Same is true for index funds, although with a lot of stocks in the index it’s likely at least some of them will pay dividends— probably around 2% is a good estimate, maybe less.

If you buy an actively traded fund you may owe more especially if you hold it as a fund not an etf because funds have to pay out any gains on stock sales.

I'm thinking about an ETF. So far, I've only ever invested in 401k, Roth (when I qualified), and traditional IRAs.

Bigger picture, I'm trying to decide what to do with $100,000 that I will be inheriting. My DH and I already invested some of our savings in I-bonds and I'm trying to determine what to do with this lump sum. I've considered mortgage recasting, principal is now $817k with a 3.99% rate and we're in the 24% bracket. That would lower our monthly payment by $689 a month. (Worth noting, I'm currently a SAHM, so I don't have the option to do more than a Spousal IRA.)

[Anonymous]

I have a non qualified brokerage account but have a wealth manager to figure out the best way to buy and sell investments to do tax loss harvesting. First year I had the account I made a bunch of money but took a loss on my taxes due to the magic they worked. I’m not sure how to do that myself (which is why I have a wealth manager).

[Anonymous]

Anonymous wrote:I have a non qualified brokerage account but have a wealth manager to figure out the best way to buy and sell investments to do tax loss harvesting. First year I had the account I made a bunch of money but took a loss on my taxes due to the magic they worked. I’m not sure how to do that myself (which is why I have a wealth manager).

How much do you pay the wealth manager - is this a % or flat fee?

[Anonymous]

I don't know why everyone is making this so complicated.

Let's start with the important point that you will not be taxed on the account unless you generate taxable income in the account (dividends, realized gains, etc.) How much you will pay in tax is function of whether the taxable income is long term/qualified or short term/ordinary.

If you are in 24% bracket and MFJ then your income is between $172,751 to $329,850. That makes this easy. Your long term capital gains tax rate is 15%. Any tax on gains (or preferred dividends ) will be taxed at a rate of 15% on the income. Short term gains (positions held less than a year) and ordinary dividends will be taxed at your regular marginal income tax rate (24%).

Holler with additional questions.

[Anonymous]

Anonymous wrote:I don't know why everyone is making this so complicated.

Let's start with the important point that you will not be taxed on the account unless you generate taxable income in the account (dividends, realized gains, etc.) How much you will pay in tax is function of whether the taxable income is long term/qualified or short term/ordinary.

If you are in 24% bracket and MFJ then your income is between $172,751 to $329,850. That makes this easy. Your long term capital gains tax rate is 15%. Any tax on gains (or preferred dividends ) will be taxed at a rate of 15% on the income. Short term gains (positions held less than a year) and ordinary dividends will be taxed at your regular marginal income tax rate (24%).

Holler with additional questions.

Thanks - you're good at explaining this! I do have a follow up question: what determines whether your ETF provides long or short term gains? Can you choose one that only offers long term gains?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I don't know why everyone is making this so complicated.

Let's start with the important point that you will not be taxed on the account unless you generate taxable income in the account (dividends, realized gains, etc.) How much you will pay in tax is function of whether the taxable income is long term/qualified or short term/ordinary.

If you are in 24% bracket and MFJ then your income is between $172,751 to $329,850. That makes this easy. Your long term capital gains tax rate is 15%. Any tax on gains (or preferred dividends ) will be taxed at a rate of 15% on the income. Short term gains (positions held less than a year) and ordinary dividends will be taxed at your regular marginal income tax rate (24%).

Holler with additional questions.

Thanks - you're good at explaining this! I do have a follow up question: what determines whether your ETF provides long or short term gains? Can you choose one that only offers long term gains?

PP explained that short term gains are for positions held less than a year. If you buy an ETF and sell it less than 1 year after buying it you will pay taxes on any gains at the short term rate. If you hold it longer than 1 year before selling you will pay the long term rate on gains when you sell.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I don't know why everyone is making this so complicated.

Let's start with the important point that you will not be taxed on the account unless you generate taxable income in the account (dividends, realized gains, etc.) How much you will pay in tax is function of whether the taxable income is long term/qualified or short term/ordinary.

If you are in 24% bracket and MFJ then your income is between $172,751 to $329,850. That makes this easy. Your long term capital gains tax rate is 15%. Any tax on gains (or preferred dividends ) will be taxed at a rate of 15% on the income. Short term gains (positions held less than a year) and ordinary dividends will be taxed at your regular marginal income tax rate (24%).

Holler with additional questions.

Thanks - you're good at explaining this! I do have a follow up question: what determines whether your ETF provides long or short term gains? Can you choose one that only offers long term gains?

PP explained that short term gains are for positions held less than a year. If you buy an ETF and sell it less than 1 year after buying it you will pay taxes on any gains at the short term rate. If you hold it longer than 1 year before selling you will pay the long term rate on gains when you sell.

But I believe funds can also distribute long and short term gains as well for any stocks that the ETF itself held and sold within the different time frames At least in my mutual fund, distributions are marked short term distribution cap gain, long term distribution cap gain and dividend/interest.

Op, if you're looking to avoid tax implications, there are a lot of "tax managed" funds out there. I'm less familiar if you're looking to invest in ETFs that intentionally provide dividend income.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I don't know why everyone is making this so complicated.

Let's start with the important point that you will not be taxed on the account unless you generate taxable income in the account (dividends, realized gains, etc.) How much you will pay in tax is function of whether the taxable income is long term/qualified or short term/ordinary.

If you are in 24% bracket and MFJ then your income is between $172,751 to $329,850. That makes this easy. Your long term capital gains tax rate is 15%. Any tax on gains (or preferred dividends ) will be taxed at a rate of 15% on the income. Short term gains (positions held less than a year) and ordinary dividends will be taxed at your regular marginal income tax rate (24%).

Holler with additional questions.

Thanks - you're good at explaining this! I do have a follow up question: what determines whether your ETF provides long or short term gains? Can you choose one that only offers long term gains?

PP explained that short term gains are for positions held less than a year. If you buy an ETF and sell it less than 1 year after buying it you will pay taxes on any gains at the short term rate. If you hold it longer than 1 year before selling you will pay the long term rate on gains when you sell.

But I believe funds can also distribute long and short term gains as well for any stocks that the ETF itself held and sold within the different time frames At least in my mutual fund, distributions are marked short term distribution cap gain, long term distribution cap gain and dividend/interest.

Op, if you're looking to avoid tax implications, there are a lot of "tax managed" funds out there. I'm less familiar if you're looking to invest in ETFs that intentionally provide dividend income.

Thanks - not looking for funds that intentionally provide dividend income (although I'm not necessarily opposed). Was really thinking more about a set it and forget it option.

[Anonymous]

Yes you will pay some taxes on dividends at least — unless you buy shares of something like Berkshire Hathaway that does not pay dividends (and hold it until death). Don’t forget state income taxes.

But what does it matter? What’s the alternative?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I don't know why everyone is making this so complicated.

Let's start with the important point that you will not be taxed on the account unless you generate taxable income in the account (dividends, realized gains, etc.) How much you will pay in tax is function of whether the taxable income is long term/qualified or short term/ordinary.

If you are in 24% bracket and MFJ then your income is between $172,751 to $329,850. That makes this easy. Your long term capital gains tax rate is 15%. Any tax on gains (or preferred dividends ) will be taxed at a rate of 15% on the income. Short term gains (positions held less than a year) and ordinary dividends will be taxed at your regular marginal income tax rate (24%).

Holler with additional questions.

Thanks - you're good at explaining this! I do have a follow up question: what determines whether your ETF provides long or short term gains? Can you choose one that only offers long term gains?

PP explained that short term gains are for positions held less than a year. If you buy an ETF and sell it less than 1 year after buying it you will pay taxes on any gains at the short term rate. If you hold it longer than 1 year before selling you will pay the long term rate on gains when you sell.

But I believe funds can also distribute long and short term gains as well for any stocks that the ETF itself held and sold within the different time frames At least in my mutual fund, distributions are marked short term distribution cap gain, long term distribution cap gain and dividend/interest.

Op, if you're looking to avoid tax implications, there are a lot of "tax managed" funds out there. I'm less familiar if you're looking to invest in ETFs that intentionally provide dividend income.

This is an advantage of ETFs over mutual funds, they are much less likely to distribute capital gains. Your experience with mutual funds is not the same.

[Anonymous]

Etf will still very much be set it and forget it. You'll get a 1099 every year that covers dividends and capital gains distributed by the etf. you might have to pay for a higher level of TurboTax if you do your own taxes...I don't think basic covers 1099 income.