By Dr. Jim Dahle, WCI Founder

Some new investors are surprised to learn that their tax bill goes up when they start investing. While investments often receive favorable tax treatment compared to earned income, the income they produce is generally taxable at some point and at some rate. We’ll go over each type of investment and how it is taxed.

Do You Have to Pay Taxes on Stocks?

Stocks are generally very tax-efficient assets and thus a good investment for those who invest in a taxable account. When investing in stocks, you generally make money in two different ways: dividends and capital gains.

Tax on Dividends

Stock dividends are taxable in the year they are received. Most stock dividends are “qualified.” The IRS is the one who does the qualifying, and qualified dividends are eligible for the lower qualified dividend tax brackets (as opposed to