Your Cheat Sheet to Taxes for Investors

Summary

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WSJ Your Money Briefing

Episode: Your Cheat Sheet to Taxes for Investors

Date: February 25, 2025
Host: Mariana Aspuru
Guest: Laura Saunders (WSJ Tax Reporter)

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Episode Overview

This episode of Your Money Briefing offers a practical guide to taxes for investors, with a primary focus on rules and strategies that can help minimize your tax burden when managing investments in taxable accounts. Host Mariana Aspuru speaks to WSJ tax reporter Laura Saunders about core considerations, recent tax rules, strategies for offsetting gains and losses, the impact of investment income surtaxes, proper reporting for cryptocurrency, and inheritance vs. gifts.

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Key Discussion Points and Insights

1. Taxable vs. Tax-Deferred Accounts

• Main Point: Investments sold in taxable accounts are taxed differently (and often favorably) compared to those in tax-deferred accounts like IRAs.
• Detail:
  • Tax is owed on gains based on the difference between sale price and purchase price.
  • Taxable accounts require more focus on rates, but often have lower rates than other income sources.
• Quote:
  • "You have to think about taxes a lot more with taxable accounts than you do with retirement accounts. But the good news there is that the rates are often lower."
    — Laura Saunders [02:25]

2. Offsetting Gains with Losses

• Main Point: Investors can subtract losses from gains, reducing taxable income. Losses can also offset a limited amount ($3,000) of ordinary income per year and carry forward indefinitely.
• Detail:
  • Keep detailed records for easy reporting and documentation.
• Quotes:
  • "The sort of bright lining of the dark cloud is that you can subtract your losses from your gains and have fewer taxes to pay on your gains."
    — Laura Saunders [03:06]
  • "That would be offsetting. Let's just say you have a big loss that's not great, but you have one. The good news there is that it carries over forever to offset gains you have."
    — Laura Saunders [03:27]

3. Short-Term vs. Long-Term Capital Gains

• Main Point: Length of investment holding period directly impacts the tax rate applied to gains.
• Detail:
  • Assets held longer than one year qualify for long-term capital gains rates (often lower).
  • Short-term gains are taxed as ordinary income.
• Quote:
  • "If you have held an investment in a taxable account longer than a year, then it will be taxed at lower long term capital gains rates. If not, it will be taxed at the same rates as your wages as your ordinary income."
    — Laura Saunders [04:02]
  • "Maybe your rate on your wages...the top rate is 24%. Well, the same rate on a long term capital gain would be 15%. That's a big difference."
    — Laura Saunders [04:19]

4. Net Investment Income Surtax (3.8%)

• Main Point: High earners may be surprised by an extra surtax on investment income.
• Detail:
  • Added in 2013; applies to singles making $200,000+ and couples making $250,000+.
  • Does not apply to IRA withdrawals, but such withdrawals can lift total income above the limits.
  • Timing sales may prevent breaching thresholds—e.g., spreading sales over two years.
• Memorable Moment:
  • "It would affect them by making them very unhappy. Also, it often surprises them..."
    — Laura Saunders [04:41]

5. Cryptocurrency Taxation

• Main Point: Crypto assets are taxed like stocks, not like traditional currencies, with the same long-term vs. short-term rules.
• Detail:
  • Gains recognized on transfer or sale, whether for cash or goods (e.g., buying a boat).
  • All crypto activity must be reported; IRS is scrutinizing compliance on this front.
• Quotes:
  • "It's taxed like rates on a stock. If you buy it at 100 and sell it at 200, then you have $100 of gain..."
    — Laura Saunders [06:06]
  • "Let's say you bought some crypto...and it went up to $90,000 in value, and you thought, 'I'm going to buy the boat with my $90,000 of crypto.'...You have a $40,000 taxable gain."
    — Laura Saunders [06:43]
  • "A lot of people that have crypto just kind of don't think taxes should apply to them...the IRS has put a sentence on the front page of the tax return right up front and center..."
    — Laura Saunders [07:20]

6. Difference Between Inherited and Gifted Investments

• Main Point: Inherited assets receive a "step-up" in basis—often saving taxes—while gifted assets retain the original basis and may lead to a larger tax bill for the recipient.
• Detail:
  • Inheritance is typically preferable tax-wise to receiving a gift while the giver is alive.
• Quotes:
  • "If you inherited it, that's the better thing. Because on the date of death, the value rose to the market value and no capital gains tax is due..."
    — Laura Saunders [07:54]
  • "So that's how an inheritance can be better than a gift."
    — Laura Saunders [09:18]

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Notable Quotes (with Timestamps & Attribution)

• "You have to think about taxes a lot more with taxable accounts than you do with retirement accounts. But the good news there is that the rates are often lower."
  — Laura Saunders [02:25]

• "The sort of bright lining of the dark cloud is that you can subtract your losses from your gains and have fewer taxes to pay on your gains."
  — Laura Saunders [03:06]

• "It would affect them by making them very unhappy. Also, it often surprises them..." (on the 3.8% surtax)
  — Laura Saunders [04:41]

• "A lot of people that have crypto just kind of don't think taxes should apply to them… the IRS has put a sentence on the front page of the tax return right up front and center…"
  — Laura Saunders [07:20]

• "If you inherited it, that's the better thing. Because on the date of death, the value rose to the market value and no capital gains tax is due..."
  — Laura Saunders [07:54]

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Important Segment Timestamps

• Taxable vs. Tax-Deferred Accounts — [02:25]
• Offsetting Gains and Losses — [03:06]
• Capital Gains: Short-Term vs. Long-Term — [04:02]
• Net Investment Income Surtax — [04:41]
• Cryptocurrency: How Taxes Work — [06:06]
  • Using crypto as currency (example: buying a boat) — [06:43]
  • Reporting requirements for crypto — [07:20]
• Inherited vs. Gifted Investments: Tax Differences — [07:54]

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Overall Tone & Takeaways

Laura Saunders' advice is direct and practical, often using relatable scenarios (selling grandma’s stock, buying a boat with crypto) to illustrate tax pitfalls and opportunities. The tone is conversational, with a focus on awareness, planning, and documentation to avoid unnecessary taxes and surprises. Attention to detail and proactivity can yield substantial tax savings, especially for those with complex assets.

Key takeaways:

• Pay attention to holding periods and account types.
• Use losses strategically to offset gains.
• Plan investment sales if you’re near income thresholds for surtaxes.
• Crypto is taxed—don’t skip IRS reporting.
• Gifts and inheritances are taxed very differently; inheritance rules are usually more favorable.

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Transcript

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[Mariana Aspuru]

Here's your money briefing for Tuesday, February 25th. I'm Mariana Aspuru for the Wall Street Journal. If you hold assets, taxable accounts, you could be eligible for favorable tax rates on investment income like capital gains and many dividends. But with the rules, details matter and could save you money.

[Laura Saunders]

If you have held an investment in a taxable account longer than a year, then it will be taxed at lower long term capital gains rates. If not, it will be taxed at the same rates as your wages as your ordinary income. So maybe your rate on your wages is the top rate is 24%. Well, the same rate on a long term capital gain would be 15%. That's a big difference.

[Mariana Aspuru]

We'll talk with Wall Street Journal reporter Laura Saunders about the key considerations you should make before filing taxes. That's after the break.

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[Mariana Aspuru]

The IRS's rules about paying taxes on your investments could work in your favor if you know how to use them. Wall Street Journal tax reporter Laura Saunders joins me. Laura, let's start off with someone who sold assets in a taxable account, like individual stocks, index funds or ETFs, for example. What's the first thing they should consider before filing their taxes?

[Laura Saunders]

Well, it's a very different world from if you sell things in a tax deferred account, like a retirement account, like an ira, you will owe taxes on any gains. You look at the price you bought it for, you look at the price you sold it for and that would be your taxable gain. And you owe tax on that. And there are all kinds of different rates it could be, but you have to think about taxes a lot more with taxable accounts than you do with retirement accounts. But the good news there is that the rates are often lower. So that's something to keep in mind, too.

[Interviewer]

Yeah. And how do you weigh your overall losses versus your gains when you're filing taxes.

[Laura Saunders]

Well, you could have a gain or you could have a loss. Like if you bought at 10 and you sold at 20, you'd have a $10 gain. If you bought at 10 and sold at 5, you'd have a $5 loss. The sort of bright lining of the dark cloud is that you can subtract your losses from your gains and have fewer taxes to pay on your gains.

[Interviewer]

That's offsetting, which you talk about in your story.

[Laura Saunders]

Yes, that would be offsetting. Let's just say you have a big loss that's not great, but you have one. The good news there is that it carries over forever to offset gains you have. And meanwhile it can offset subtract from $3,000 a year of ordinary income like wages. So that's a little bit of help too.

[Interviewer]

But you have to keep detailed accounts of like everything that happened, correct?

[Laura Saunders]

You do, you do. Or maybe your broker keeps them for you. But you should know where the records are.

[Interviewer]

How are sales of investments that you've held for a short period of time taxed differently than ones that you've had for a long term?

[Laura Saunders]

If you have held an investment in a taxable account longer than a year, then it will be taxed at lower long term capital gains rates. If not, it will be taxed at the same rates as your wages as your ordinary income. Now let's think about the difference. So maybe your rate on your wages is the top rate is 24%. Well, the same rate on a long term capital gain would be 15%. That's a big difference.

[Interviewer]

Another consideration for filers to make is the 3.8% surtax on net investment income. How might this affect someone who qualifies for it?

[Laura Saunders]

It would affect them by making them very unhappy. Also, it often surprises them. The thing is, in 2013, Congress added this provision. If you're a single filer and your modified adjusted gross income is $200,000 or more, then you would have an extra 3.8% tax to pay on your net investment income. If you're a joint filer, married couple, then it applies if Your income is $250,000 or above. It doesn't apply to things like withdrawals from IRAs, but that income could help lift other income, interest income, dividend income, things like that. So it is affected by it. So this becomes another thing to plan for another tax puzzle to solve. Let's say that somebody had some stock and it had a bunch of gains in it and they wanted to sell it to maybe Raise a down payment for a house or something like that? Well, it might be that if they sold all of it before year end, then that would push them into the 3.8% tax. But if they sell some of it in December and some of it in January, they would stay below the income thresholds. So that's something to be aware of whenever you're selling a taxable asset. If a little planning would save you money, try.

[Interviewer]

Okay, let's talk about crypto. For anyone who's held cryptocurrency this year, how are gains on that taxed?

[Laura Saunders]

If they've held it this year or any year? It's taxed like rates on a stock. If you buy it at 100 and sell it at 200, then you have $100 of gain. And if it's held for less than a year, it'd be taxed at ordinary income rates, which are higher. And if it's been held for more than a year, then it would be taxed at long term capital gains rates. So pay attention to that difference. People think of it as a currency, but it's not taxed like currencies or tax currency trading. It's taxed like an investment asset.

[Interviewer]

And people think of it as currency because they use it sometimes to buy things like boats, houses. How is that tax?

[Laura Saunders]

Let's say you bought some crypto, maybe $50,000 worth of crypto, and it went up to $90,000 the value, and you thought, I'm going to buy the boat with my $90,000 of crypto. That's what it costs. Well, you might hand the crypto over to the boat dealer, but you have a $40,000 taxable gain. It's like if you gave the boat dealer some shares of Exxon stock that you owned, there's a transfer and there's a tax on that transfer. You don't get out of it just because you hand over the crypto.

[Interviewer]

What are other things that crypto holders should be aware of when they're reporting their assets to the irs?

[Laura Saunders]

Well, that they should report them. A lot of people that have crypto just kind of don't think taxes should apply to them. They don't want to know about all the details. And so the IRS has put a sentence on the front page of the tax return right up front and center during this year. Did you buy or sell or trade crypto? Basically, and you have to answer yes or no. And if you answer no and you did and they find out about it, you've got a big problem because You've lied.

[Interviewer]

What about investments that you've inherited from someone who's passed away? How are those taxed?

[Laura Saunders]

Well, let's talk about two cases here. Investments that someone has given to you and investments that you've inherited because they're very different.

[Interviewer]

Two different.

[Laura Saunders]

If you inherited it, that's the better thing. Because on the date of death, the value rose to the market value and no capital gains tax is due. Let's just say that grandma had some stock she bought at 5 and it rose to be $100 a share.

[Interviewer]

Thank you, Grandma.

[Laura Saunders]

Thank you, Grandma. Now, if grandma had sold it during her life, she would have owed tax on $95 of appreciation. Well, if you inherit it from her, you inherit an asset worth. So therefore, if you go to sell it at 101, you only have $1 of gain. So you get to skip out on a lot of tax. It's a benefit that's used heavily by billionaires and the very wealthy. Now the other case. What if grandma gave you some of that stock while she was alive? Well, in that case, the so called basis, the cost carries over to you. So let's say she gave it to you when it was worth $100. Then when you sell it, your basis would be $5. So you would have a $95 gain to pay taxes on, more or less. So that's how an inheritance can be better than a gift.

[Mariana Aspuru]

That's WSJ reporter Laura Saunders. And that's it for your money briefing. This episode was produced by Zoe Culkin with supervising producer Melanie Roy. I'm Mariana Aspuru for the Wall Street Journal. Thanks for listening.

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