Are taxes lowering your investment returns?
Abstract: When it comes to investments, it’s after-tax returns that really count, not what’s earned before taxes. This is an even more critical issue for higher-income taxpayers, now that they face higher income tax rates (up to 39.6% on interest and short-term capital gains and 20% on qualified dividends and long-term capital gains) plus the 3.8% Medicare contribution tax on net investment income to the extent their modified adjusted gross income (MAGI) exceeds certain levels. This article takes a look at a few strategies to boost posttax results: contributing to tax-advantaged accounts, investing in municipal bond funds or in tax-efficient (as opposed to tax-free) investments, and considering timing when selling an investment. It also includes a chart showing how the 2014 tax increases are triggered based on varying factors.