Taxes can weigh down returns from whatever your preferred securities are, and they come in three flavors: interest, capital gains, and dividends.
Federal interest taxes are on most interest-bearing products and accounts like bonds or savings accounts. Interest payments are taxed just like income at your marginal tax rate. The only exception to federal interest taxes are on municipal bond securities - bonds issued by state or local governments or agencies. Municipality issued bonds are exempt from federal interest tax, making them a great investment to hold in taxable accounts if they belong in your portfolio.
Capital gains taxes are a little different. The federal government differentiates between short-term capital gains (increases in the value of an asset over a holding period of less than a year) and long-term capital gains (increases in the value of an asset over a holding period of more than a year). Short-term capital gains are taxed as ordinary income at your marginal tax rate while long-term capital gains are taxed at the capital gains tax rate of either 0%, 15%, or 20% depending on your income.
Finally, dividend taxes are levied on the dividends or payouts companies issue shareholders. The federal government taxes ordinary dividends received from shares of common stock and preferred stock at the ordinary income tax rate. However, most dividends you would receive are qualified dividends, which means that they are taxed at the long-term capital gains tax rate of either 0%, 15%, or 20% depending on your income.