Basics Beginner: Introduction to Taxes and Investments

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1.
_______ are taxed at a relatively low rate if you hold your investments long enough.
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Capital gains. Long-term capital gains are taxed at a lower rate to encourage investment.
2.
Investments in which earnings are allowed to build tax-free are called ______.
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Tax-deferred. Tax-deferred investments are those in which earnings are allowed to build tax-free until you receive them as income.
3.
Which of the following is not a tax-sheltered investment you can use to compound interest?
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Municipal bonds. Tax-deferred retirement plans and deferred annuities provide compounding interest, but municipal bonds pay only simple interest. However, you can get the effect of compound interest with a municipal bond mutual fund if you reinvest the dividends.
4.
The profits realized on the sale of appreciated stocks you held for more than a year are subject to lowered tax rates.
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True. Profits made on the sale of stocks you held for more than a year are long-term capital gains, which are taxed at lower rates than regular income, including dividends and interest.
5.
Interest paid on dividends, bonds, and bank accounts is generally taxable.
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True. Interest paid on dividends, bonds, and bank accounts is generally taxable as income.