Investment taxes for dummies

[Rural]

Okay, so I opened our first taxable account this month, through Vanguard. Now, I'm trying to research the taxes and I'm discovering I don't know enough of the basics to follow most of what I'm finding. Can anyone point to something really basic, or just explain it to me like I'm a five-year-old?


If I can get a little background and vocabulary, I can and will just read the IRS instructions, but for now, I don't even know enough to properly search the IRS website for the forms I'd need.

[Cheddar Stacker]

Investing in a taxable account will produce a 1099 at year end from vanguard reporting this kind of stuff:

Interest - from bonds - report on Schedule B on your 1040 - taxed at your marginal tax rate.
Dividends - from stocks/reits - report on Schedule B on your 1040 - taxed at your marginal tax rate except if they're
Qualified dividends - report on page 1 of your 1040 - taxed at 0% or 15% (15% if your marginal rate is 25% or > ).
Short-term capital gains - from stocks/bonds/reits - report on schedule D - taxed at your marginal rate.
Long-term capital gains - same - same - taxed at 0% or 15% (same as qualified dividends).
Capital gain distributions - report on schedule D
Foreign taxes paid - report on page 2 of your 1040 to get a credit.

There are other odd things but those are the basics.

[johnny847]

Investing in a taxable account will produce a 1099 at year end from vanguard reporting this kind of stuff:

Interest - from bonds - report on Schedule B on your 1040 - taxed at your marginal tax rate.
Dividends - from stocks/reits - report on Schedule B on your 1040 - taxed at your marginal tax rate except if they're
Qualified dividends - report on page 1 of your 1040 - taxed at 0% or 15% (15% if your marginal rate is 25% or > ).
Short-term capital gains - from stocks/bonds/reits - report on schedule D - taxed at your marginal rate.
Long-term capital gains - same - same - taxed at 0% or 15% (same as qualified dividends).
Capital gain distributions - report on schedule D
Foreign taxes paid - report on page 2 of your 1040 to get a credit.

There are other odd things but those are the basics.

In the interest of being complete, there is a 20% bracket for QDI/LTCG. And there's an extra 3.8% for Obamacare above a certain income which I believe does not intersect exactly with an income bracket.
But the majority of people do not have to worry about the 20% QDI/LTCG bracket as it corresponds to the 39.6% marginal income tax rate.


Also take note of the Qualified Dividends and Capital Gain Tax Worksheet (found on page 43 of the 2014 1040 instructions). This worksheet will show you how the 0%, 15%, and 20% brackets for QDI/LTCG work. Unfortunately, all IRS worksheets are annoyingly written - it takes a bit of staring before you realize where the 0%, 15%, and 20% brackets are from that worksheet.

[Spork]

I'll also add that the 1099s I've gotten from Vanguard pretty much have everything you need to just plug stuff into the forms.  (That may not help with tax planning... but tax prep is super simple.)

[Rural]

Helps, guys, thanks. I'll google everything that may be on that 1099, read that section of the 1040 instructions (no doubt several times) and not worry at all about the 20% bracket or the Obamacare extra as they will never affect me!


It's also reassuring to hear the prep is straightforward. We have little enough in for now that if I learn some things by doing, it's not likely to be a crisis.