Have you ever wondered why gains are separated between long-term and short-term when you receive your 1099 at tax time? There is a very good reason for that, and one you might want to consider more carefully when investing.

Short-term capital gains are derived if you hold an investment one year or less before disposing of it. Short-term gains are taxed as "ordinary income," the same rate you pay on wages or business profits.

Long-term capital gains, on the other hand, are generally taxed no higher than 20% and could be taxed at 0%, depending on your income. See the table below:

Exceptions to the long-term capital gains tax rate are collectibles such as art, jewelry, and precious metals. These are taxed at 28% regardless of your income. Bear in mind, though, that tax rates on ordinary income range from 10% to 37%.

Be sure to keep this information in mind when managing your investments. It could make a BIG difference come tax time!

Please note the information above is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of the information provided below should not be acted upon without specific professional guidance. Please call us if you have any questions.