Understanding Capital Gains Tax Rates

The advantage of capital gains, as opposed to ordinary income, is that the basic maximum tax rate on capital gains for property held for more than one year is currently 15 percent. In contrast, the top four ordinary income tax rates are all higher than this, with the top rate for 2005 through 2010 at 35 percent. The IRS taxes short-term and long-term gains differently. The "holding period" is the amount of time you held some security before you sold it. A short-term gain or short-term loss is a...
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How Taxes Affect Your Returns

Last week I discussed why costs matter when investing. By considering taxes as an additional expense, you'll be able to make informed decisions that, all else being equal, can help your portfolio's returns over the long run. Research by Vanguard's Investment Counseling & Research group shows that taxes on dividends and capital gains can be a significant drag on a fund's overall performance—in many cases, the largest single drag. And that's particularly true for stock funds. (more…)
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