Investment Accounts - Tax Exempt?

[sariewright]

Hello again! I am considering opening an investment account with the funds I received from the sale of my home in 2022. I am concerned about the tax implications, if any, since I currently only receive my income from social security. Would I be subject to capital gains tax (for dividends or investment income) if my income stays below the threshold for the year (I believe $55,800 for 2022)? Thanks for your help!

[Joe_D-CPA-PFS-CFP]

Hi sariewright,

Thanks for the question. Whether or not taxes are due depends on the type of investment vehicles used in the account as well as the amount of money involved. If you invest in regular mutual funds, each year you would have capital gain distributions and dividends and possible interest to report on your personal return. If you put all the money in qualifying tax-exempt bonds, although you have to report tax-exempt income for various calculations, you would generally not have to pay federal income tax on the investment returns, state tax may apply. 

The best solution is to hold your money in cash until you can talk to a qualified financial planner or investment professional so they can educate on your options as to what is taxable and what is tax exempt. The tax-exempt sector includes bonds, notes, leases, bond funds, mutual funds, trusts, and life insurance, among other investment vehicles.

Please reach out if you need more information.

[VolvoGirl]

Where did you get the $55,800 threshold?  Is that something to do with SS?  All your income can be taxable.  you pay tax on the amount (not including SS)  over the Standard Deduction of 12,950 for 2022.  But if you have too much income it may make part of your SS taxable.  Yes you are subject to capital gains tax for sales and income tax on interest & dividends.  

Up to 85% of Social Security becomes taxable when all your other income plus 1/2 your social security, reaches:

Married Filing Jointly: $32,000

Single or head of household: $25,000

Married Filing Separately: 0