Glossary

The US tax words, explained so everyone understands

The 13 US tax words — explained in plain English, with worked examples for 2026 and the mistake most beginners make: long-term capital gains at 0, 15 or 20 %, qualified dividends, the 3.8 % net investment income tax, the wash sale rule, IRA and Roth IRA (and their income limits), the 401(k), the PFIC trap for foreign ETFs, state tax on top, cost basis and Form 1099-B, the step-up for inherited shares, and FBAR/FATCA for accounts abroad. Federal figures from irs.gov; states add their own. No advice. The rest of the glossary is the same in every country.

Tax

Tax is national — and in the United States it is federal and state. These pages describe the federal rules for 2026 and say where your state comes in. The rest of the glossary — P/E, ETF, RSI and the other words — is the same in every country.

Capital gains taxThe federal tax on the profit when you sell: 0, 15 or 20 % after more than a year, ordinary income rates within a year.Qualified dividendsDividends taxed at the low 0/15/20 % rates — if you held the stock more than 60 days around the ex-dividend date.Net investment income tax (NIIT)An extra 3.8 % federal tax on investment income once your income passes $200,000 (single) or $250,000 (married filing jointly).Wash sale ruleSell at a loss and buy the same stock back within 30 days, and you cannot deduct the loss now — it is added to the new shares.IRA and Roth IRAThe US tax-advantaged accounts for long-term investing: $7,500 a year in 2026, tax deferred (traditional) or tax-free on the way out (Roth).Roth IRA income limitsIn 2026 the Roth allowance phases out between $153,000 and $168,000 (single) and $242,000 and $252,000 (married filing jointly).401(k)The retirement plan through your employer: up to $24,500 of salary in 2026, often with a company match, tax deferred or Roth.PFIC (foreign funds and ETFs)For a US taxpayer, almost every fund or ETF registered outside the US is a PFIC — taxed at the highest rate plus interest, with Form 8621 every year.State tax on investmentsMost states tax gains and dividends as ordinary income on top of the federal tax; a few — Florida, Texas — have no income tax at all.Cost basis and Form 1099-BCost basis is what you paid, including fees. Your gain is the sale price minus basis. Your broker reports every sale on Form 1099-B.Inherited shares (step-up in basis)Inherit shares and your cost basis becomes the value on the date of death — the lifetime gain is never taxed as income. Gifts are different.Accounts abroad (FBAR and FATCA)Foreign accounts over $10,000 in total must be reported on an FBAR; larger foreign assets also on Form 8938. The penalties for forgetting are severe.Foreign withholding taxThe tax a foreign company's home country takes off the dividend before it reaches you. The US gives you a credit for it, usually up to 15 %.

Written by Claus Frisch, founder of Kiggo. Not an adviser, not a bank — Kiggo explains, you decide.

The US tax words, explained so everyone understands

Tax

The words are easier to understand on a real stock