What are some examples of different taxable events?

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What are some examples of different taxable events?

A taxable event is any occurrence or event that results in a tax burden. Taxable occurrences occur for all investors or parties that pay taxes. If an investor earns dividends or realizes capital gains, these are two instances of taxable occurrences.

Although a party should want to maximize earnings, it should equally seek to minimize its tax responsibilities. For example, imagine an investor owns a company that pays a quarterly dividend of 60 cents per share. The investor owns 1,000 shares of stock and will get $2,400 in dividends for the year, which will be taxed.

A capital gain is another taxable event. A capital gain happens when the value of an investment in capital or real estate asset rises beyond a party’s purchase price. Unrealized capital gains are not realized until the asset is sold for a profit.

Assume an investor holds a mutual fund with a total value of $200,000. The investor put $50,000 into the mutual fund at the start. If the investor sells all of his mutual fund shares, it will be deemed a taxable event.

Assume the investor wishes to sell $150,000 in mutual fund shares in order to purchase a home. Because the mutual fund’s shares have increased in value, it is a taxable event. The investor estimates that he would owe $15,000 in capital gains tax if he sells his shares and chooses not to purchase a home. He is not subject to taxation since he did not sell his mutual fund shares.

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