What are the two ways you can make money from investing in the stock market?

Stocks are a common form of investment that offer two ways for shareholders to make money: capital gains and dividend payments.

Capital Gains. A share of stock represents a fraction of ownership of the corporation that issued it. Dividends. A dividend is a payment that corporations can choose to pay to stock shareholders as a means of attracting and retaining investors.

Explanation:

Taxes on Stock Income

Capital gains and dividend income are subject to federal taxation. Capital gains are subject to a 15 percent tax rate if you hold an investment longer than a year and a rate equal to your income tax rate if you buy and sell the investment within a year.

Retirement Accounts

Although the money shareholders earn from stocks is subject to taxation, taxes can be reduced by investing through retirement accounts. When you contribute money to a 401 (k) plan offered by an employer or an individual retirement account that you open yourself, the money you contribute doesn't count toward your taxable income for the year. In addition, investments in the account aren't subject to taxation until you take the money out during retirement, at which time they are subject to normal income taxes. In other words, you can avoid capital gains taxes on stock investments by contributing to a 401 (k) plan or an individual retirement account.