Definition of Taxable Event

A transaction or any other event that leads to tax liability is known as taxable event. All investors/ tax payers experience taxable events.

Explanation of Taxable Event

Payment and receipt of salaries/wages is one of the most common taxable events. Other taxable events include receipt of taxable interest, dividends, profitable sale of investment and cash withdrawals from individual retirement arrangement (IRA).

Example

Suppose Mr. X has savings of $10,000 in a mutual fund. He wants to sell his shares worth of $5,000 to buy a new car. As the shares value has appreciated, so selling the shares would be a taxable event. If he sells shares worth of $2,000 then he must pay a tax on capital gains.