Taxes & Account Types — What You Actually Keep

Every other lesson stops at the pre-tax number. This one is about the number that lands in your account. You’ll learn how the United States taxes a stock investor — the holding-period line between short- and long-term gains, the wash-sale trap, which dividends get the good rate, how to choose which shares you sell, how to harvest a loss without losing the exposure, and which account each asset belongs in. Then a full section for non-US investors, whose rules are different in almost every respect: withholding at source, the treaty question, how gains are treated, an estate-tax exposure that starts far lower than most people expect, and the Irish-fund route many use instead.

⚠️ Read this first. This lesson is an educational illustration of how the rules generally work, for a stated tax year. Brackets and thresholds are indexed and change; rules get amended; your facts (filing status, state, residency, other income, treaty position) change the answer. Nothing here is a filing position or tax advice — confirm with a qualified tax professional before acting.

What you’ll learn

Why the after-tax return is the only one you can spend — and how much tax can move it
Short-term vs. long-term gains, and why “wait N days” is sometimes the best trade
The wash-sale window (61 days, across all your accounts, including reinvested dividends)
Which dividends are “qualified” and the holding-period test that decides it
Cost basis, tax lots, and why which shares you sell is a decision, not an accident
Tax-loss harvesting done right, and where each asset belongs (taxable vs. IRA vs. Roth)
For non-US investors: W-8BEN, withholding and treaties, how gains are treated, the $60,000 estate-tax cliff, and the UCITS alternative

Why the after-tax number is the number

Two investors buy the same stock at $100 and sell at $130 a year later. One held it for 366 days; the other for 364. Same business, same price, same 30% gain. At a common bracket, one pays roughly 15% on the gain and keeps about $25.50 of it; the other pays ordinary rates — say 24% — and keeps about $22.80. Two days changed the after-tax result by more than 10% (illustrative, rounded).

That is the whole lesson in miniature: tax is a cost like any other, and unlike most costs it is partly under your control — through timing, through which shares you sell, and through where you hold each asset. The pre-tax return is the market’s; the after-tax return is yours.

Key idea: You cannot control the market’s return. You can control a meaningful slice of the tax on it. Ignoring that slice is leaving money on the table for no risk.

Part I — US persons

Short-term vs. long-term: the one-year line

The US taxes capital gains — the profit when you sell for more than you paid — at two very different rates depending on how long you held:

Holding period	Called	Taxed at
One year or less	Short-term gain	Your ordinary income rate — the same bracket as your salary
More than one year	Long-term gain	Preferential brackets — generally 0%, 15%, or 20% depending on taxable income

The clock starts the day after you buy and includes the day you sell. Above an income threshold, an additional 3.8% net investment income tax applies to investment income on top of either rate.

“Wait N days” is the cheapest tax strategy there is. If a lot is a few weeks from turning long-term, compute two things: the tax saved by waiting, and the price fall that would wipe that saving out. Then you are weighing a real number against a real risk instead of ignoring one of them. For a $3,000 gain moving from a 24% bracket to 15%, the saving is $270 — the stock would have to fall about 2.7% on a $10,000 position for waiting to cost more than it saves (illustrative).

Netting, and the annual loss limit

Losses offset gains: short-term losses net against short-term gains first, long-term against long-term, then the two nets are combined. If you end the year with a net capital loss, up to $3,000 of it ($1,500 if married filing separately) can offset ordinary income; anything beyond that carries forward indefinitely to future years. A loss is never wasted — but it can be deferred, which is why timing losses to years with gains is worth doing.

The wash-sale rule

You sell a stock at a loss, then buy it back a week later because you still like it. The loss is disallowed — the IRS treats you as never having really sold.

The rule, in general terms: a loss is disallowed if you buy the same or a “substantially identical” security within 30 days before or after the sale — a 61-day window counting the sale date. Three things make it bite harder than people expect:

It applies across all your accounts, including an IRA. Rebuying inside an IRA is the worst case: the disallowed loss has nowhere to go and is permanently lost.
Reinvested dividends count as purchases. A DRIP that reinvests a dividend inside the window washes part of the loss — the classic accidental wash.
Substantially identical means the same ticker, options on it, or securities convertible into it. A different company in the same industry is not. Two index funds tracking the same index are unsettled territory that conservative practice avoids; two funds tracking different indexes are the common harvesting swap.

The loss is not gone — it is added to the cost basis of the replacement shares, and the holding period carries over. But it is deferred, and if the replacement is in an IRA, deferred forever. Gains are never washed.

Key idea: Before selling anything at a loss, draw the 61-day window and mark every purchase in it — DRIP, planned rungs, options assignments, other accounts. Then turn the DRIP off or move the purchase outside the window.

Qualified dividends

Dividends come in two tax flavors:

Type	Taxed at	Typical payers
Qualified	Long-term capital-gains rates	Most US corporations and qualified foreign companies
Ordinary (non-qualified)	Your ordinary income rate	REITs (mostly), bond and money-market funds, most partnerships

Even a qualified payer’s dividend is only qualified for you if you pass the holding-period test: you must hold the shares for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Buy just before the ex-date and sell just after to “capture” the dividend, and you get the ordinary rate and usually a price drop equal to the dividend. Heavily hedged shares can fail the test too. REIT ordinary dividends are generally not qualified, though they may qualify for a separate 20% deduction.

Cost basis and tax lots: choose which shares you sell

Every purchase creates a tax lot with its own date and cost. When you sell part of a position, which lot you sell decides the gain and its character:

Method	What it does	When it helps
FIFO (most brokers’ default)	Sells the oldest shares first	Rarely what you want in a rising stock — it realizes the biggest gains
Specific identification	You name the lots	Almost always — pick the character and size of gain or loss you want
Highest cost first (HIFO)	Sells the most expensive lot	Minimizes today’s gain or maximizes a harvested loss — but check the character
Lowest cost first	Sells the cheapest lot	Deliberately realizing gains in a 0% bracket year

The catch: specific identification must be designated at or before the trade, in whatever form your broker accepts. You cannot pick the lot after the fact. Make “which lot?” part of your trade ticket.

Tax-loss harvesting

Harvesting means selling a position at a loss to realize it for tax purposes, while keeping the market exposure through a similar but not substantially identical replacement for at least 31 days. A short-term loss is worth the most when it offsets short-term gains or ordinary income.

Three honest caveats: the replacement will track the original imperfectly (say what that costs); harvesting lowers your basis, so the tax is deferred, not eliminated — unless you hold until a step-up or donate the shares; and the 31-day swap-back is itself a taxable event. Harvest when the loss is material (a floor like the larger of $500 or 5% of the lot keeps you from churning) and when you have gains to offset — or a future year you can plan for.

Which account for which asset

Tax-advantaged accounts change the math entirely. A traditional IRA / 401(k) defers tax until withdrawal (taxed then as ordinary income); a Roth is funded with after-tax money and grows tax-free. The placement logic (general):

Asset behaviour	Taxable	Traditional IRA / 401(k)	Roth
Broad, low-turnover equity index; stocks held for years	✅ best — long-term rates, harvesting, step-up at death	fine	fine
Bonds, REITs, high-yield, high-turnover active funds	✗ ordinary income every year	✅	✅
The holdings you expect to grow most	ok	ok	✅ best — the growth is never taxed
Foreign equity funds that withhold tax	✅ — the foreign tax credit is only usable here	✗ credit lost	✗ credit lost

At year-end your broker reports it all on Form 1099 (1099-B for sales, 1099-DIV for dividends) — the document you reconcile your own records against.

In the plugin: tax-lens runs this whole part on your own lots — Trade mode for one sale, Position mode for one holding, Portfolio mode for placement and annual tax drag; position-ladder times its rungs against the wash window; dividend-analysis reports the gross yield, tax-lens turns it into the after-tax one.

Part II — Non-US investors

If you live outside the United States and buy US stocks through a US or international broker, almost none of Part I applies to you, and a different set of rules does — rules that US-centric content almost never mentions. This section covers the US side only; your country of residence taxes the same income under its own rules, and that is a question for a local professional.

W-8BEN: the form that sets your rate

Form W-8BEN certifies to your broker that you are not a US person and claims any treaty rate you are entitled to. It is generally valid until the end of the third calendar year after you sign it — an expired form means the broker withholds at the full statutory rate, and may apply backup withholding. Put the expiry year in your calendar. At year-end you receive Form 1042-S, the statement of US-source income and tax withheld — often the document your home-country return needs.

Dividends: withholding at source, and the treaty question

US-source dividends paid to a non-resident are withheld at 30% by the broker or paying agent before the cash reaches you. That rate is reduced only if your country of residence has an income-tax treaty with the US and you have claimed it on a valid W-8BEN — many treaties bring it to 15%, some lower.

Taiwan, Hong Kong, and Singapore have no US income-tax treaty, so 30% applies. Check your own country’s status rather than assuming.

The headline number is the after-withholding yield (illustrative):

Gross dividend yield	At 30% (no treaty)	At 15% (typical treaty)
3.0%	2.1%	2.55%
1.3% (a broad US index fund)	0.9%	1.1%

dividend-analysis reports the gross figure; the withholding line is what you actually receive. Interest on Treasuries and most corporate bonds is generally exempt from withholding (the “portfolio interest” exemption). Fund distributions are more complex — capital-gain and return-of-capital distributions are treated differently from ordinary dividends; reconcile against the 1042-S rather than assume.

Capital gains: generally not taxed by the US — with conditions

For a non-resident alien, gains on US stocks are generally not taxed by the United States. The general condition is that you were not present in the US for 183 days or more during the tax year and the gain is not connected to a US trade or business. The exceptions matter: gains that are effectively connected with a US business, and gains on US real property interests — including certain REITs — under FIRPTA, which are taxed and often withheld.

Two consequences follow. First, your home country’s tax on the gain is the one that actually applies — the US side being zero does not make the gain tax-free. Second, the entire tax-loss-harvesting logic of Part I is irrelevant to your US position: you cannot offset a US tax you do not owe. Whether harvesting matters for your home-country return is a local question.

The estate-tax cliff at $60,000

This is the rule most non-US investors have never heard of, and the one with the largest tail.

US-situs assets held by a non-resident are subject to US estate tax on death. US-domiciled stocks and US-domiciled ETFs count as US-situs. US Treasury bonds, bank deposits, and shares of non-US companies (including ADRs of foreign issuers) generally do not. The exemption for non-residents is only $60,000 — not the multi-million-dollar exemption US persons have — and the rates climb to 40%, unless an estate-tax treaty provides otherwise. Only a minority of countries have one; Taiwan, Hong Kong, and Singapore do not.

A non-resident holding $220,000 of US-listed stocks and ETFs has $160,000 above the exemption (illustrative). Brokers may also freeze the account until a US estate-tax clearance is obtained. The two standard mitigations are holding the same exposure through non-US-domiciled funds (next section) or estate-planning structures that are entirely a professional’s domain.

The Irish-domiciled UCITS route

Many non-US investors hold US stocks through Irish-domiciled UCITS ETFs — the same S&P 500 or total-market exposure, listed in London, Amsterdam, or Frankfurt. The trade-offs (general):

Dimension	US-domiciled ETF	Irish-domiciled UCITS ETF (same index)
Dividend withholding	30% (or treaty rate) at your level	15% at the fund level under the US–Ireland treaty; no further Irish withholding for non-Irish holders
Accumulating share class	Not available — US funds must distribute	Available — dividends reinvested inside the fund (whether your home country taxes the notional income is a local question)
US estate tax	US-situs — exposed above $60,000	Not US-situs — outside the US estate-tax net
Expense ratio and spread	Usually lower TER, tighter spreads, deepest liquidity	Typically a few basis points higher TER and wider spreads; the largest funds are liquid, many are not
After-tax tracking	Benchmark	For a no-treaty investor, 15% fund-level withholding beats 30% at your level — the UCITS fund often wins after tax despite the higher fee
Access	Any broker	Needs a broker with European exchange access; US brokers generally will not sell them

One hard rule: US persons must not buy UCITS funds — for them these are PFICs with punitive tax treatment. The route is for non-US investors only.

In the plugin: tax-lens --non-us <country> runs this whole section on your holdings — W-8BEN status, treaty or no-treaty rate, the capital-gains conditions, your US-situs total against the $60,000 line, and the US-ETF vs. UCITS arithmetic; etf-analysis compares the funds themselves.

Your first-year checklist

If you are a US person:

Decide the account before the asset: broad equity index in taxable, bonds and REITs in the IRA or 401(k), your highest-conviction growth in the Roth.
Turn DRIP off in any taxable position you might sell at a loss — or accept that it can wash.
Set your broker’s default lot method to specific identification and name the lot on every partial sale.
Before any sale, check the calendar: days to long-term, and any purchase inside the 61-day window.
In December, list unrealized losses above your materiality floor, pair each with a non-identical replacement, and harvest what offsets this year’s gains.
Keep every 1099 and your own lot records; reconcile them.

If you are a non-US investor:

Sign W-8BEN before your first dividend; write the expiry year in your calendar.
Look up whether your country has a US income-tax treaty. If not, budget for 30% on every dividend and read yields net of it.
Add up your US-situs holdings; if they are approaching $60,000, read the UCITS section and talk to a cross-border professional.
Decide, fund by fund, whether a US-domiciled or an Irish UCITS version serves you better after withholding, fee, and estate exposure.
Keep every Form 1042-S — your home-country return will want it.
Find out how your own country taxes overseas dividends and gains; the US being zero on gains is only half the answer.

Check yourself

You bought 100 shares on 2025-03-10 and want to sell on 2026-03-10. Is the gain long-term?
You sold at a loss on June 3 and your broker’s DRIP bought 2 shares on June 30. What happened to your loss?
A stock pays a qualified dividend with an ex-date of May 15. You bought on May 10 and sold on June 5. Is your dividend qualified?
A Taiwan resident receives a $100 gross dividend from a US stock. How much arrives, and why?
A Singapore resident holds $250,000 of US-listed ETFs at a US broker. What is the estate-tax exposure above the exemption, and what are the two standard mitigations?

Answers

No — you held exactly one year. The holding period must be more than one year; the clock starts the day after purchase, so selling on 2026-03-11 or later makes it long-term (illustrative; confirm dates with your broker’s records).
Part of the loss was washed — the DRIP purchase is inside the 30-days-after window. The disallowed portion is added to the basis of the 2 reinvested shares, not lost, but deferred.
No. You held about 26 days within the 121-day window; the test requires more than 60. The dividend is taxed at ordinary rates.
About $70. Taiwan has no US income-tax treaty, so the statutory 30% is withheld at source; Taiwan’s own tax on the income is a separate question.
About $190,000 above the $60,000 non-resident exemption, potentially taxed at rates up to 40% absent a treaty (Singapore has none). Mitigations: hold the exposure through non-US-domiciled (e.g. Irish UCITS) funds, or estate-planning structures — the latter strictly with a professional.

Key takeaways

The after-tax return is the only one you can spend; timing, lot choice, and account placement put a real slice of it under your control.
More than one year turns a gain long-term and cuts the rate sharply — “wait N days” is a strategy, and it has a break-even price you can compute.
The wash-sale window is 61 days, applies across all accounts including IRAs, and is triggered by reinvested dividends; disallowed losses move into basis, they do not vanish.
Dividends are qualified only if the payer qualifies and you pass the more-than-60-of-121-days test; REIT dividends generally do not.
Name the lot you sell before the trade; harvest material losses into non-identical replacements and remember it defers tax, not eliminates it.
Non-US investors face a different regime: 30% withholding unless a treaty applies (none for Taiwan, HK, Singapore), gains generally untaxed by the US under conditions, and a $60,000 estate-tax cliff on US-domiciled holdings that Irish UCITS funds sidestep.
None of this is tax advice — rules and thresholds change; confirm your own facts with a professional.

Next / Related: Previous lesson — ETFs & Index Investing. Next: Earnings Season, Explained. Or head back to the Learning hub, then Choose a Skill to run tax-lens on your own holdings. See also Concepts and the Glossary.

Educational content only. Not financial advice, and not tax advice — confirm with a qualified professional.