Understanding Taxes on Investing

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I have to admit I took Business class way back in High School and things have changed alot since then. But this part of the business class confused me then and it still confuses me.

As an investor, you pay income taxes and capital gains taxes on your investments. How much you owe depends on how the income is earned. You owe income taxes on interest earned on bonds. You also pay income taxes on dividends earned on stocks and mutual funds
Generally, if you sell a security at a higher price than you paid, you earn a capital gain. If you sell at a lower price than you paid, you have a capital loss. The length of time that you hold your investment, or holding period, determines whether you have a long- or short-term capital gain or loss. If you hold a security for more than one year (i.e., 366 days), it is considered a long-term capital gain. Short-term capital gains are those that you earn on sales of securities held one year or less.

Long-term capital gains are taxed at a lower rate than your regular income. For all but the lowest income tax bracket, investors pay a long-term capital gains tax rate of 15%. In 2008, investors in the 10 or 15% tax bracket pay a long-term rate of 0%. Short-term capital gains are taxed as regular income. Capital gains are calculated by subtracting the basis from the price for which you sell the investment.

Investing & Taxes

filed under AOL Money & Finance

Read more of the article to make sure that you are doing it right for the most benefit to you without doing in illegally. Yes there are certain things that if you do is illegal and a big no no.