1. How investment income is taxed
| Type | Federal rate | Form |
|---|---|---|
| Short-term capital gain (held ≤ 1 yr) | Ordinary income (10–37%) | 1099-B → Schedule D |
| Long-term capital gain (held > 1 yr) | 0 / 15 / 20% | 1099-B → Schedule D |
| Qualified dividends | 0 / 15 / 20% | 1099-DIV box 1b |
| Ordinary dividends & bond interest | Ordinary income | 1099-DIV box 1a / 1099-INT |
| U.S. Treasury interest | Federal: ordinary; State: exempt | 1099-INT |
| Muni bond interest | Federal: exempt; State: home state usually exempt | 1099-INT |
| NIIT (Net Investment Income Tax) | +3.8% on income > $200k single / $250k joint | Form 8960 |
2025 figures. Always confirm with a CPA — this module is education, not tax advice.
2. Short-term vs long-term
The single biggest tax lever a retail investor has is the holding period. Hold a stock 366 days instead of 364 and the federal rate on a $50,000 gain drops from up to 37% to 15% — a $11,000 swing on the same trade.
3. Federal capital-gains calculator (2025)
Estimate federal tax on a stock sale
Estimates 2025 federal LTCG brackets and ordinary income brackets only. Excludes state, NIIT and AMT. Output is illustrative.
4. Qualified vs ordinary dividends
For a dividend to be qualified (taxed at the favorable 0/15/20% rate) you must have held the underlying stock more than 60 days during the 121-day window around the ex-dividend date. Most U.S. blue-chip dividends are qualified by default. REIT dividends are mostly ordinary.
5. The wash-sale rule
If you sell a security at a loss and buy the same or substantially identical security within 30 days before or after the sale, the IRS disallows the loss for the current year. Triggers many investors don't realize:
- Buying back the stock in your IRA after selling it in your taxable account.
- Spousal accounts on the other side.
- Reinvested dividends within the window.
- Options on the same name.
Avoidance technique
Sell SPY at a loss → buy IVV or VOO (different funds, similar exposure). Wait 31 days, optionally swap back.
6. Tax-loss harvesting
Strategically realize losses to offset gains, plus up to $3,000 of ordinary income per year. Excess losses carry forward indefinitely. Best practiced in late November–December using positions that are down vs cost basis. Modern brokers (Fidelity, Schwab, Wealthfront) automate this.
7. Tax-advantaged accounts (2025 limits)
| Account | 2025 limit | Tax treatment | Best for |
|---|---|---|---|
| 401(k) / 403(b) | $23,500 + $7,500 catch-up @ 50+ | Pre-tax in, ordinary income out | Capture employer match first |
| Traditional IRA | $7,000 + $1,000 catch-up | Pre-tax in (deductible if no plan), ordinary out | Deductible contributions if eligible |
| Roth IRA | $7,000 + $1,000 catch-up | After-tax in, tax-free out at 59½ | Highest-growth assets, long horizon |
| HSA | $4,300 single / $8,550 family + $1,000 @ 55+ | Triple tax-free (in, growth, qualified medical out) | The single best account in the U.S. tax code |
| 529 | $19,000/yr (gift exclusion) per beneficiary | After-tax in, tax-free for qualified education | Kids' college |
| Mega backdoor Roth | Up to $46,500 of after-tax 401(k) | After-tax in, tax-free out (if plan allows) | High earners with the right 401(k) |
Recommended priority order
- 401(k) up to full employer match (free money)
- HSA up to limit (if eligible)
- Roth IRA up to limit
- Back to 401(k) up to $23,500
- Mega backdoor Roth (if available)
- Taxable brokerage
8. State taxes & cost-basis methods
- States with no income tax: TX, FL, WA, NV, TN, SD, WY, AK, NH (and limited NH on dividends).
- California & New York tax capital gains as ordinary income (up to 13.3% / 10.9%).
- Cost basis methods: FIFO (default), specific lot ID (best for tax control), average cost (mutual funds). Tell your broker which lots to sell.
9. Annual tax checklist
- October–November: review unrealized losses for harvesting candidates.
- December 1: max out 401(k) contributions before final paycheck.
- December 31: harvest losses. Avoid wash sales (31-day buffer).
- January–March: gather 1099-B, 1099-DIV, 1099-INT.
- April 15: contribute to prior-year IRA / HSA.
- April 15: file or extend.
- Consider quarterly estimated taxes if your trading gains exceed $1,000 of unwithheld tax.