Investments and Taxes

Share This

Many of your returns from investments are treated favorably under the tax law. For example, if you sell a long-term capital asset, such as stock, you may pay less than half as much tax on any gain as you would pay on the same amount of wages. Not only is the capital gain not subject to payroll taxes, but it is taxed at a lower rate than you pay on ordinary income.

To take advantage of the tax benefits for certain investments, you need to understand a few rules.

Length of Time You Hold an Asset

The length of time you hold an asset can make a big difference in how much tax you pay on any gain. If you own a stock for 11 months, for example, you pay ordinary income tax rates on the gain - 25% for many taxpayers.

If you hold that stock a little longer - over the one-year mark - you pay the capital gains rate of 15% instead. (Depending on your income, your capital gains tax rate may be 20%, 15%, or even 0%. High-income taxpayers are subject to an additional 3.8% capital gains tax.)

Wash Sale

Wash sale rules are another case where you need to know the rules - before you sell stocks and buy them back again. In most cases, if you sell capital assets at a loss, you can deduct that loss against other capital gains or, to a limited extent, against ordinary income. If you buy the same stock back within 30 days before or after the sale, you can't take the loss this year. Instead, the loss increases your basis in the new stock.

Knowing the rules can help you make better investment decisions.

For example, say you are comparing an investment that pays dividends to a deposit account that pays interest. If they pay the same rate, it seems like a toss-up - until you consider that qualified dividends on stock you have owned over 60 days are taxed at 15%, or 0% if you are in a lower income tax bracket. Interest is taxed at ordinary income tax rates. That makes the dividend paying investment with a comparable return a better deal after you consider taxes.

Real Estate Rental Property

One investment that has traditionally provided tax benefits is real estate rental property. If you invest in real estate and rent it out, or you convert a former residence to rental property, you probably have many expenses you can deduct against the rental income on your tax return. You can deduct mortgage interest, property taxes, repairs and maintenance, for instance.

You can also deduct depreciation expense to account for loss of value of the building (but not the land) over time. Because depreciation doesn't represent a cash outlay on your part, the depreciation deduction means you could have a tax loss on your real estate rental, even if you do not have a negative cash flow.

If you actively participate in the management of the property, you may be able to use a loss of up to $25,000 from rental real estate to offset your ordinary income, such as wages. Be sure to file jointly if you live with your spouse, otherwise you can't take this deduction. If you lived apart from your spouse the entire year, you may be able to use a loss of up to $12,500.

Employee Stock Options

If your employer offers employee stock options, you may benefit from special tax treatment of these options if you meet the qualifications.

Two kinds of employee stock options receive beneficial tax treatment - incentive stock options (ISOs) and options granted under employee stock purchase plans (ESPPs). Both types of options are statutory stock options.

If you meet the qualifications, you don't pay tax until you actually sell the stock, not when you receive or exercise the option. In addition, you effectively convert a benefit from your employer from ordinary income to a capital gain - so you can use the lower capital gains tax rates.

The holding periods are different for statutory stock options than for most capital assets. To use the preferential capital gains tax rates, you must wait two years from the option grant date, or one year from the exercise date, to sell the stock. Otherwise, part or all of your gain is taxed as ordinary income.


Back to My Tax Information

February 2017
S M T W T F S
1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28

Upcoming Tax Dates

February 1 — Individuals who must make estimated tax payments
If you did not pay your last installment of estimated tax by January 15, you may choose (but are not required) to file your income tax return (Form 1040) for 2016 by February 1. Filing your return and paying any tax due by February 2 prevents any penalty for late payment of the last installment. If you cannot file and pay your tax by February 1, file and pay your tax by April 18.

February 1 — Payers of gambling winnings
If you either paid reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of Form W2G.

February 1 — Nonpayroll taxes
File Form 945 to report income tax withheld for 2016 on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit or pay any undeposited tax under the accuracy of deposit rules.

February 1 — Social Security, Medicare, and withheld income tax
File Form 941 for the fourth quarter of 2016. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter timely, properly, and in full, you have until February 10 to file the return.

February 1 — Certain small employers
File Form 944 to report social security and Medicare taxes and withheld income tax for 2016. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more for 2016 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.

February 1 — Farm employers
File Form 943 to report social security and Medicare taxes and withheld income tax for 2016. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.

February 1 — Federal unemployment tax
File Form 940 for 2016. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you deposited the tax for the year timely, properly, and in full, you have until February 10 to file the return.

February 1 — All businesses
Give annual information statements to recipients of certain payments you made during 2016 - Details

February 1 — Form 720 taxes
File Form 720 for the fourth quarter of 2016.

February 1 — Wagering tax
File Form 730 and pay the tax on wagers accepted during December 2016.

February 10 — Nonpayroll taxes
File Form 945 to report income tax withheld for 2016 on all nonpayroll items. This due date applies only if you deposited the tax for the year timely, properly, and in full.

February 10 — Social security, Medicare, and withheld income tax
File Form 941 for the fourth quarter of 2016. This due date applies only if you deposited the tax for the quarter timely, properly, and in full.

February 10 — Certain small employers
File Form 944 to report social security and Medicare taxes and withheld income tax for 2016. This due date applies only if you deposited the tax for the year timely, properly, and in full.

February 10 — Farm employers
File Form 943 to report social security and Medicare taxes and withheld income tax for 2016. This due date applies only if you deposited the tax for the year timely, properly, and in full.

February 10 — Federal unemployment tax
File Form 940 for 2016. This due date applies only if you deposited the tax for the year timely, properly, and in full.

February 10 — Employees who work for tips
If you received $20 or more in tips during January, report them to your employer - Details

February 10 — Communications and air transportation taxes under the alternative method
Deposit the tax included in amounts billed or tickets sold during the first 15 days of January.

February 12 — Regular method taxes
Deposit the tax for the last 16 days of January.

February 15 — All businesses
Give annual information statements to recipients of certain payments you made during 2016 - Details

February 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in January.

February 15 — Nonpayroll withholding
If the monthly deposit rule applies, deposit the tax for payments in January.

February 15 — All employers
Begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2016, but did not give you Form W4 to continue the exemption this year.

February 16 — Individuals
If you claimed exemption from income tax withholding last year on the Form W-4, you must file a new Form W-4 by this date to continue your exemption for another year - Details

February 20 — Everyone
Federal Holiday (Washington's Birthday) - Details

February 25 — Communications and air transportation taxes under the alternative method
Deposit the tax included in amounts billed or tickets sold during the last 16 days of January.

February 28 — Regular method taxes.
Deposit the tax for the first 15 days of February.

February 28 — All businesses
File information returns (for example, Forms 1099) for certain payments you made during 2016.

February 28 — Payers of gambling winnings.
File Form 1096 along with Copy A of all the Forms W2G you issued for 2016. If you file Forms W2G electronically, your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms remains February 1.

February 28 — All employers
File Form W3, Transmittal of Wage and Tax Statements, along with Copy A of all the Forms W2 you issued for 2016. If you file Forms W2 electronically, your due date for filing them with the SSA will be extended to March 31. The due date for giving the recipient these forms remains February 1.

February 28 — Large food and beverage establishment employers
File Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips. Use Form 8027T, Transmittal of Employer's Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically, your due date for filing them with the IRS will be extended to March 31.

February 28 — Wagering tax
File Form 730 and pay the tax on wagers accepted during January.

View More Tax Dates