Taxes for Investors

What creates a taxable event

In a taxable account, tax generally follows an event rather than a paper gain.

• Selling at a gain realises a capital gain
• Dividends and interest are generally taxable when received
• Fund distributions can be taxable even if you did not sell
• Unrealised gains on something you still hold are generally not taxed

Holding period

In the U.S., gains on assets held beyond one year are generally taxed at long-term capital gains rates, which are typically lower than short-term rates that apply to shorter holdings.

This is one more structural reason frequent trading is expensive: the tax treatment itself is worse.

Cost basis and records

Cost basis is what you paid, and it determines the taxable gain. Keeping records of purchases, including reinvested dividends, prevents unnecessary tax on money you already paid tax on.

Not tax advice

Rules vary by country, change over time and depend on your circumstances. Consult a qualified tax professional.