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How You Can Pay Zero Tax on Your Investments

Nobody likes paying taxes on investments. But some lucky taxpayers are able to get a 0% rate on some of their investment income.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, runs through the rules for the 0% rate, explaining how it can apply to both long-term capital gains and qualified dividend income. Dan notes that on the dividend side, the rate only applies for ordinary stocks, with certain pass-through entities like real-estate investment trusts Annaly Capital (NYSE: NLY  ) and Chimera Investment (NYSE: CIM  ) paying out dividends that get taxed at ordinary income tax rates. Similarly, business development companies Prospect Capital (NASDAQ: PSEC  ) , Ares Capital (NASDAQ: ARCC  ) , and Main Street Capital (NYSE: MAIN  ) have traditionally paid out a combination of qualified and non-qualified dividend income, making their distributions only partially eligible for the 0% rate. Dan concludes that if you have room in those lower two brackets, selling stocks at a gain can be a smart move to make the most of your tax-free opportunity.

Take advantage of this little-known government tax rule
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 31, 2014, at 7:14 AM, webmind wrote:

    This article says nothing about how to lower your investment taxes to 0. What a crock.

  • Report this Comment On April 03, 2014, at 10:30 AM, Weeb59 wrote:

    OK so I basically have to be poor to avoid tax. Thanks for the great advice. I'll quit my job now.

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Dan Caplinger
TMFGalagan

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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