Accurately Accounting for After-tax Accounts

Are you wondering how to accurately represent the taxation of your after tax accounts?

Cash and Bonds

If you have a checking or savings account, or a brokerage account holding bonds, select Ordinary Income.

Stock

If you have a brokerage account holding stock, select Capital Gains.

Mixed Accounts

If you have a brokerage account holding a combination of stock and bonds, you may want to separate the securities into two accounts to accurately account for the different taxation of each security.

When you enter an account that holds stock, you'll need to enter a cost basis

Your cost basis is the original investment amount for tax purposes. This is usually the purchase price, adjusted for stock splits, dividends, and return of capital distributions. Your institution will track that for you.

When you enter an account that holds stock, you'll also need to enter the turnover rate

If you are a passive investor, holding ETFs or index funds, the turnover rate will be low or negligible. If you have a managed portfolio, managed fund, or trade frequently the turnover rate will be higher, maybe 20% or more. The turnover rate represents any selling that happens within the account and may incur capital gains taxes. The tool will take the account balance and cost basis, realize that percentage of gains, and tax them at your Long Term Capital Gains rate.

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