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Question: How Will Owning Stocks Affect My Taxes?

Owning stocks, mutual funds and other investments can affect your taxes, even if you do not sell them. Most people are aware of the taxes related to selling stocks. but may not be aware of other tax implications. If you are not prepared when you file your taxes, you may need to pay additional money when you file your taxes. Mutual funds can be especially tricky if you have the earnings reinvested in the mutual fund automatically. You are taxed on the money you reinvest, and you will need to adjust your tax withholdings with that in mind.

When it is time to file your taxes. you should receive a 1099-DIV form from each company or fund that sent you dividends. You will need to use the Schedule B form if you are filing your taxes by hand. If you use a computer program or online service, the program will ask you questions and file the form for you if you need to use it. This makes filing your taxes a bit easier.

You can adjust your withholdings as you receive your dividends by using the IRS calculator. Another option is to put aside the money that you will need to pay on taxes from each dividend. For example, if your current tax rate is approximately twenty five percent, you will need to set aside a quarter of any dividends that you receive to pay on your taxes at the end of the year. This is often the simplest way to do this. You can talk to your accountant if you have more questions about it. If you are having the money automatically reinvested in the mutual fund, you will need to find the money to set aside yourself. Your financial planner may be able to help you figure out how much you are earning each year, so you can determine the taxes.

If you do not sell the stocks, you will not need to pay taxes as the values of the stocks go up or down. You only need to pay these taxes when you sell. It is important to realize that this is different from paying on the dividends you receive, because you may be responsible for paying both types of taxes during the year. Mutual funds, and stocks within a retirement plan are handled differently, and so you do not need to worry about paying the taxes with these types of accounts. Any dividends you receive should go back into the retirement account, and you will either pay the taxes when you make the withdrawals with a traditional account, or avoid paying the taxes all together with the Roth account.