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Fine-Tuning Your Investment Strategy

Tax Rates

Tax Rate on Capital Gains

The maximum tax rate on net long-term capital gains is 20% in 2019 for individuals above the top income tax bracket threshold. For the middle brackets it is 15% and for those in the 10% or 15% bracket, the rate is 0%. Investments must be held for more than one year to qualify for these preferential rates. Gains on property held for one year or less are treated as short-term capital gains, subject to tax at the same rates as ordinary income.

Tax Rate on Dividends

Dividends paid on common and preferred stocks that have been held for more than 60 days also generally qualify for a special tax rate. A longer holding period may apply to certain preferred stock dividends or if the shareholder's risk of loss was protected. If you are in the highest tax bracket the rate is 20%, 15% for the middle tax brackets, and 0% for the 10% or 15% brackets. The reduced rate generally does not apply to dividends paid by a foreign corporation that is a foreign investment company, a passive foreign investment company, or a foreign holding company. Also, if the shareholder has an obligation to make related payments on certain other property (e.g., in a short sale), the reduced dividend rates would not apply.

These tax rates may benefit investors in stocks and real estate, including mutual funds, which generate dividend income and long-term capital gains. Investments that yield ordinary income (such as bonds and deferred gains from variable annuities, 401(k) plans and IRAs) may need to be evaluated against investment opportunities that yield dividend income and long-term capital gains.

SUGGESTION: Since the dividend and capital gains tax rate may be lower than ordinary income tax rates, it may be beneficial to evaluate your investment philosophy regarding what assets should be held inside tax-deferred plans. For instance, it may be more tax efficient to hold your taxable bond portfolio inside a tax-deferred plan (since taxable bonds are taxed at ordinary income rates) and hold your dividend paying stock portfolio and appreciating asset portfolio outside of your tax-deferred plans since the income generated by these assets may be taxed at a lower rate. Note that distributions from tax-deferred plans are generally taxed at ordinary income tax rates.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

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Investment and insurance products and services are offered through INFINEX INVESTMENTS, INC. Member FINRA (Opens in a new Window)/SIPC (Opens in a new Window).  UniVest Financial Services is a trade name of UniBank. Infinex and UniBank are not affiliated. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of, nor guaranteed or insured by, any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.


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