A Tax Guide for Investors

For most people, tax time is about as much fun as taking a bath with an electric eel, and taxes on your investments can be particularly confusing and irksome. Nevertheless, if you make wise use of capital losses and gains, you may find that you owe less in taxes than you thought.

Here's what you need to know to be tax-wise about the investments you own, or those you might be considering adding to your portfolio.

Timing is everything

If you realize a gain on an investment, you will have to pay taxes on that gain, unless it is in a tax-favored retirement account. Just how much you pay will depend on your income, your purchase price, your sale price and how long you held the investment.

Timing is crucial. Suppose you invest in SnapTat, a phone app that lets users share and compare their cool tattoos. You buy 1,000 shares at $10 apiece, for a total cost of $10,000. SnapTat stock goes up and you sell the shares for $12,000, six months after your purchase. Because you bought and sold your shares less than 12 months apart, you now have a short-term capital gain, which will be taxed at your