A Quick Word On Taxes
While investing can grow your wealth, it’s important to remember that profits may be taxed.
Two key areas most investors need to know about are:
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Capital Gains Tax
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Dividend Income Tax
Let’s take a look at what these are and how they typically work.
1. Capital Gains Tax
A capital gain is the profit you make when you sell an investment for more than you paid.
Example:
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You buy a stock at $50
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Sell it later at $80
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Your capital gain is $30 per share
There are usually two types of capital gains:
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Short-term (held less than 12 months): Often taxed at a higher rate
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Long-term (held 12 months or more): Often taxed at a lower, discounted rate
In many countries (including the USA and Australia), holding your investments for longer can reduce your tax burden.
2. Dividend Tax
When companies pay out profits to shareholders as dividends, you usually pay tax on that income — even if you don’t sell the stock.
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Dividends are taxed as income in most countries
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In some countries (like Australia), franked dividends may come with tax credits to avoid double taxation
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In the US, qualified dividends are often taxed at lower rates than regular income
Whether you reinvest the dividend or take it as cash, it may still be taxable in the year it’s received
Keeping Records and Reporting
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Keep track of your buy and sell prices, dates, and dividends received
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Your broker or platform usually provides tax statements at the end of each financial year
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If you’re unsure, it’s wise to consult a tax accountant or financial adviser
Summary
| Type of Tax | Applies When You… | Notes |
|---|---|---|
| Capital Gains | Sell an asset for more than you paid | May be discounted if held long term |
| Dividend Tax | Receive income from stocks | Taxed even if reinvested |
| Other Taxes | May apply (stamp duty, ETF distributions) | Depends on your country |
Taxes should never be the sole reason to avoid investing — but being aware of them helps you plan smarter and avoid unexpected costs later.