diff --git "a/260c5d09-cec1-4792-8438-c5317ae74891.json" "b/260c5d09-cec1-4792-8438-c5317ae74891.json" new file mode 100644--- /dev/null +++ "b/260c5d09-cec1-4792-8438-c5317ae74891.json" @@ -0,0 +1,40 @@ +{ + "interaction_id": "260c5d09-cec1-4792-8438-c5317ae74891", + "search_results": [ + { + "page_name": "Differences of Short Term vs Long Term Capital Gains - SmartAsset ...", + "page_url": "https://smartasset.com/financial-advisor/short-term-vs-long-term-capital-gains", + "page_snippet": "Capital gains are taxed by the federal government. But whether they're short term vs long term capital gains can make a big difference in your tax bill.Profits from an asset sold within a year of buying it are short-term capital gains. As a result, they\u2019re taxed as regular income according to your tax bracket, ranging from 10% to 37%. This is considered ordinary income since the asset isn\u2019t held for a very long period of time. Let\u2019s take a look at the tax, depending on the bracket that you personally fall into. ... Profits from assets held for a year or more are long-term capital gains. Profits from assets held for a year or more are long-term capital gains. The extra time you\u2019ve held onto those assets could help you come tax season. Long-term capital gains are taxed at 0%, 15% and 20% depending on your taxable income. As a result, they might put you in a different tax bracket compared to short-term capital gains. Long-term capital gains are taxed at a more favorable rate because you\u2019re selling an asset that you\u2019ve held for longer than one year. Short-term capital gains are taxed as ordinary income while long-term gains are taxed at a significantly lower rate, in many instances.", + "page_result": "Differences of Short Term vs Long Term Capital Gains - SmartAsset | SmartAsset
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Short-Term vs. Long-Term Capital Gains

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Written\u00a0by\u00a0Dori Zinn
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When you sell something, you\u2019re likely looking to profit from it. Capital gains are profits from an asset sale, like your home, business, or stocks. Capital gains come in two different forms: long-term and short-term. Each faces a different tax consequence. Short-term gains are taxed as ordinary income while long-term gains are taxed at a lower rate. To understand how these capital gains might impact your assets and personal tax situation, consider working with a financial advisor who specializes in taxes. 

What Are Short-Term Capital Gains?

Profits from an asset sold within a year of buying it are short-term capital gains. As a result, they\u2019re taxed as regular income according to your tax bracket, ranging from 10% to 37%. This is considered ordinary income since the asset isn\u2019t held for a very long period of time. Let\u2019s take a look at the tax, depending on the bracket that you personally fall into.

For 2022, the tax bracket looks like this:

 RateSingleMarried Filing JointlyMarried Filing SeparatelyHead of Household
10%$0 \u2013 $10,275$0 \u2013 $20,550$0 \u2013 $10,275$0 \u2013 $14,650
12%$10,276 \u2013 $41,775$20,551 \u2013 $83,550$10,276 \u2013 $41,775$14,651 \u2013 $55,900
22%$41,776 \u2013 $89,075$83,551 \u2013 $178,150$41,776 \u2013 $89,075$55,901 \u2013 $89,050
24%$89,076 \u2013 $170,050$178,151 \u2013 $340,100$89,076 \u2013 $170,050$89,051 \u2013 $170,050
32%$170,051 \u2013 $215,950$340,101 \u2013 $431,900$170,051 \u2013 $215,950$170,051 \u2013 $215,950
35%$215,951 \u2013 $539,900$431,901 \u2013 $647,850$215,951 \u2013 $323,925$215,951 \u2013 $539,900
37%$539,900+$647,850+$323,925+$539,900+

What Are Long-Term Capital Gains?

\"Here's

Profits from assets held for a year or more are long-term capital gains. The extra time you\u2019ve held onto those assets could help you come tax season. Long-term capital gains are taxed at 0%, 15% and 20% depending on your taxable income. As a result, they might put you in a different tax bracket compared to short-term capital gains. For example, if you earn $100,000 a year, you\u2019re in the 15% tax bracket. For short-term capital gains, you\u2019d be at 24%. But your gains and losses will determine which bracket or brackets you fall into.

Here are the long-term capital gains tax rates for 2022:

 RateSingleMarried Filing JointlyMarried Filing SeparatelyHead of Household
0%$0 \u2013 $41,657$0  \u2013 $83,350$0 \u2013 $41,675$0 \u2013 $55,800
15%$41,676 \u2013 $459,750$83,351 \u2013 $517,200$41,676 \u2013 $258,600$55,800 \u2013 $488,500
20%$459,750+$517,200+$258,600+$488,500+

What Are Capital Losses?

Almost everything you own relates to a capital asset. Capital gains are what you earn over a certain amount of time. However, there\u2019s also a chance you had a capital loss. A capital loss is money you\u2019ve lost through your investments and assets. You can use those losses to lower your tax rate since losses offset gains. You\u2019ll be able to determine how much you owe in taxes by calculating your \u201cnet\u201d gains or losses. If your losses are more than your gains, you can deduct the difference on your tax return, up to $3,000 a year.

Key Difference of Short Term vs. Long Term Capital Gains

There are some differences when looking at both types of capital gains, but the most important difference is how each is taxed. Short-term capital gains result from selling a good or asset that you own for one year or less. Long-term capital gains are taxed at a more favorable rate because you\u2019re selling an asset that you\u2019ve held for longer than one year. Short-term capital gains are taxed as ordinary income while long-term gains are taxed at a significantly lower rate, in many instances. The total amount of tax savings will depend on what tax bracket you would fall into with a short-term gain, as seen above.

How to Lower Your Capital Gains

\"Here's

There are a few ways to offset capital gains taxes. They include:

  • Holding assets for more than a year: Even if you did nothing else but own your assets for longer than a year, you could end up paying less by moving to a different tax bracket.
  • Utilizing your retirement accounts: IRAs, 401(k)s and 529 plans allow investments to grow tax-free or tax-deferred. If your retirement account sells investments, you\u2019re not on the hook for capital gains tax. Contributions to health savings accounts (HSAs) are also tax-free and assets grow tax-free.
  • Carrying over your loss to the next year: Losses cap out at $3,000 a year. As a result, you can carry over the rest to the next year and claim it on that year\u2019s tax return.

The Bottom Line

The difference between short-term and long-term capital gains could be the difference between a big tax bill and a smaller one. When buying and selling assets, consider how long you\u2019ve owned them and how much tax you\u2019ll pay on them in the near future. Short-term capital gains consist of profits from an asset sold within a year of purchase. They face a tax rate similar to regular income: Between 10% and 37%. However, if you hold onto assets for a year or more, they\u2019re long-capital gains. Taxes on those gains top out at 20%, but may be as little as 0%. Meanwhile, if you take a capital loss, you can either deduct the loss this year or carry it over into a year when you make more income.

Investment Tips

  • Making sure your money is working hard for you isn\u2019t always the easiest task. A financial advisor can help you calculate gains and losses to minimize what you owe. SmartAsset\u2019s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you\u2019re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you haven\u2019t already, you might want to sign up for a robo-advisor. Many robo-advisors offer tax-loss harvesting, which sells investments that are hurting your portfolio and helps offset what you earn from the gains.
  • If you\u2019re just looking for an easy way to figure out your capital gains taxes, there are tools that can help you. For example, SmartAsset\u2019s capital gains tax calculator, can help you determine what you\u2019ve gained or lost this year and what taxes you\u2019ll pay (if any).

Photo credit: \u00a9iStock.com/cnythzl, \u00a9iStock.com/alfexe, \u00a9iStock.com/skynesher

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", + "page_last_modified": "" + }, + { + "page_name": "Topic no. 409, Capital gains and losses | Internal Revenue Service", + "page_url": "https://www.irs.gov/taxtopics/tc409", + "page_snippet": "Examples of capital assets include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss.Almost everything you own and use for personal or investment purposes is a capital asset. Examples of capital assets include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss. IRS Tax Topic on capital gains tax rates, and additional information on capital gains and losses. If you hold it one year or less, your capital gain or loss is short-term. For exceptions to this rule, such as property acquired by gift, property acquired from a decedent, or patent property, refer to Publication 544, Sales and Other Dispositions of Assets; for commodity futures, see Publication 550, Investment Income and Expenses; or for applicable partnership interests, see Publication 541, Partnerships. To determine how long you held the asset, you generally count from the day after the day you acquired the asset up to and including the day you disposed of the asset. To determine how long you held the asset, you generally count from the day after the day you acquired the asset up to and including the day you disposed of the asset. If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income.", + "page_result": "\n\n \n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n Topic no. 409, Capital gains and losses | Internal Revenue Service\n \n\n\n\n\n \n\n \n\n \n \n \n Skip to main content\n \n \n\n
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Topic no. 409, Capital gains and losses

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More In Help

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Almost everything you own and use for personal or investment purposes is a capital asset. Examples of capital assets include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss. Generally, an asset's basis is its cost to the owner, but if you received the asset as a gift or inheritance, refer to\u00a0Publication 551, Basis of Assets\u00a0for information about your basis. You have a capital gain if you sell the asset for more than your adjusted basis. You have a capital loss if you sell the asset for less than your adjusted basis. Losses from the sale of personal-use property, such as your home or car, aren't tax deductible.

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Short-term or long-term

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To correctly arrive at your net capital gain or loss, capital gains and losses are classified as long-term or short-term. Generally, if you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. For exceptions to this rule, such as property acquired by gift, property acquired from a decedent, or patent property, refer to Publication 544, Sales and Other Dispositions of Assets; for commodity futures, see Publication 550, Investment Income and Expenses; or for applicable partnership interests, see Publication 541, Partnerships. To determine how long you held the asset, you generally count from the day after the day you acquired the asset up to and including the day you disposed of the asset.

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If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income. The term \"net capital gain\" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year. The term \"net long-term capital gain\" means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years.\u00a0The term \u201cnet short-term capital loss\u201d means the excess of short-term capital losses (including any unused short-term capital losses carried over from previous years) over short-term capital gains for the year.

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Capital gains tax rates

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Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0%. For taxable years beginning in 2023, the tax rate on most net capital gain is no higher than\u00a015%\u00a0for most individuals.

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A capital gains rate of 0% applies if your taxable income is less than or equal to:

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  • $44,625 for single and married filing separately;
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  • $89,250 for married filing jointly and qualifying surviving spouse; and
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  • $59,750 for head of household.
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A capital gains rate of\u00a015%\u00a0applies if your taxable income is:

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  • more than $44,625 but less than or equal to $492,300 for single;
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  • more than $44,625 but less than or equal to $276,900 for married filing separately;
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  • more than $89,250 but less than or equal to $553,850 for married filing jointly and qualifying surviving spouse; and
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  • more than $59,750 but less than or equal to $523,050 for head of household.
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However, a capital gains rate of\u00a020%\u00a0applies to the extent that your taxable income exceeds the thresholds set for the\u00a015%\u00a0capital gain rate.

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There are a few other exceptions where capital gains may be taxed at rates greater than 20%:

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  1. The taxable part of a gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate.
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  2. Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate.
    3. \n\t
  3. The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate.
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Note: Net short-term capital gains are subject to taxation as ordinary income at graduated tax rates.

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Limit on the deduction and carryover of losses

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If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss shown on line 16 of Schedule D (Form 1040), Capital Gains and Losses. Claim the loss on line 7 of your Form 1040 or Form 1040-SR. If your net capital loss is more than this limit, you can carry the loss forward to later years. You may use the Capital Loss Carryover Worksheet found in Publication 550\u00a0or in the Instructions for Schedule D (Form 1040)PDF to figure the amount you can carry forward.

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Where to report

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Report most sales and other capital transactions and calculate capital gain or loss on Form 8949, Sales and Other Dispositions of Capital Assets, then summarize capital gains and deductible capital losses on Schedule D (Form 1040).

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Estimated tax payments

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If you have a taxable capital gain, you may be required to make estimated tax payments. For additional information, refer to Publication 505, Tax Withholding and Estimated Tax, Estimated Taxes and Am I required to make estimated tax payments?

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Net investment income tax

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Individuals with significant investment income may be subject to the Net Investment Income Tax (NIIT). For additional information on the NIIT, see Topic no. 559.

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Additional information

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Additional information on capital gains and losses is available in Publication 550 and Publication 544. If you sell your main home, refer to Topic no. 701, Topic no. 703 and Publication 523, Selling Your Home.

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\n\n \n\n \n\n\n\n\n\n\n\n \n\n", + "page_last_modified": " Tue, 12 Mar 2024 19:16:21 GMT" + }, + { + "page_name": "Taxes on Stocks: What You Have to Pay, How to Pay Less - NerdWallet", + "page_url": "https://www.nerdwallet.com/article/taxes/taxes-on-stocks", + "page_snippet": "Investing in stocks is a great way to build wealth, but don't let taxes on stocks take you by surprise. Here's a guide to understanding taxes on stocks.Short-term capital gains tax is a tax on profits from the sale of an asset held for a year or less. Short-term capital gains tax rates are the same as your income tax bracket. \u00bb MORE: Not sure what tax bracket you\u2019re in? Learn about federal tax brackets. Long-term capital gains tax is a tax on profits from the sale of an asset held for longer than a year. Long-term capital gains tax rates are 0%, 15% or 20%, depending on your taxable income and filing status. Dividends and capital gains on stock held inside a traditional IRA are tax-deferred, and tax-free if you have a Roth IRA. Dividends and capital gains on stocks in a regular brokerage account typically aren\u2019t. You may have to pay capital gains tax on stocks sold for a profit. Any profit you make from selling a stock is taxable at either 0%, 15% or 20% if you held the shares for more than a year.", + "page_result": "\n\n \n \nTaxes on Stocks: What You Have to Pay, How to Pay Less - NerdWallet\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n \n
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Taxes on Stocks: What You Have to Pay and How to Pay Less

Learn how dividends and capital gains can affect your tax bill, and how you can reduce what you pay.
\"Tina
\"Sabrina
By Sabrina Parys\u202f and\u00a0 Tina Orem\u202f\u00a0
Updated
Edited by\u00a0Sheri Gordon \u202f Reviewed by\u00a0Lei Han \u202f
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Nerdy takeaways

  • You may have to pay capital gains tax on stocks sold for a profit.

  • Any profit you make from selling a stock is taxable at either 0%, 15% or 20% if you held the shares for more than a year.

  • If you held the shares for a year or less, you'll be taxed at your ordinary tax rate.

  • You may be able to reduce your taxes on stocks by holding investments in a tax-advantaged account, holding them for more than a year, and using losses to offset gains.

MORE LIKE THISTaxes

The stock market climbing to record highs might have some people thinking, "Is it time to start investing in stocks?" That's up to you.

Investing in stocks can be a great way to build wealth and financial security, but it\u2019s important to understand how taxes on the sale of stocks could affect your federal income tax bill.

Capital gains tax on stocks: Do you have to pay?

Yes. If you sell stocks for a profit, you'll likely have to pay capital gains taxes.

Generally, any profit you make on the sale of an asset is taxable at either 0%, 15% or 20% if you held the shares for more than a year, or at your ordinary tax rate if you held the shares for a year or less. Any dividends you receive from a stock are also usually taxable.

Do you pay taxes on stocks you don't sell?

No. Even if the value of your stocks goes up, you won't pay taxes until you sell the stock. Once you sell a stock that's gone up in value and you make a profit, you'll have to pay the capital gains tax. Note that you will, however, pay taxes on dividends whenever you receive them.

When the value of your stocks goes up but you haven't sold them, this is known as "unrealized gains."

Similarly, if the value of your stocks goes down and you haven't sold them, this is known as "unrealized losses." Selling a stock for profit locks in "realized gains," which will be taxed. However, you won't be taxed anything if you sell stock at a loss. In fact, it may even help your tax situation \u2014 this is a strategy known as tax-loss harvesting.

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How are stocks taxed?

There are two types of capital gains taxes on realized stock gains:

Short-term capital gains tax

Short-term capital gains tax is a tax on profits from the sale of an asset held for a year or less. Short-term capital gains tax rates are the same as your income tax bracket. \n\n\u00bb MORE: Not sure what tax bracket you\u2019re in? Learn about federal tax brackets.

Long-term capital gains tax

Long-term capital gains tax is a tax on profits from the sale of an asset held for longer than a year. Long-term capital gains tax rates are 0%, 15% or 20%, depending on your taxable income and filing status.

Long-term capital gains tax rates are usually lower than those on short-term capital gains. That can mean paying lower taxes on stock sales.

\u00bb MORE: See the capital gains tax rates

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How are dividends taxed?

For tax purposes, there are two kinds of dividends: qualified and nonqualified. The tax rate on qualified dividends is 0%, 15% or 20%, depending on your taxable income and filing status. This is usually lower than the rate for nonqualified dividends. The tax rate on nonqualified dividends, sometimes called ordinary dividends, is the same as your regular income tax bracket.

  • In both cases, people in higher tax brackets pay more taxes on dividends.

  • How and when you own a dividend-paying investment can dramatically change the tax bill on the dividends.

  • There are many exceptions and unusual scenarios with special rules; see IRS Publication 550 for the details

    IRS. About Publication 550, Investment Income and Expenses. Accessed Jan 23, 2024.
    View all sources
    .

\u00bb MORE: Learn more about how dividend taxes work

When do you have to pay taxes on stocks?

Taxes on stocks and dividends are incurred in the tax year when the stock is sold or the dividend payment is made.

By mid-February of the following year, you\u2019ll get paperwork from your brokerage that will help you tally up your total gains and losses to determine the tax bill. For example, if you sold securities through a brokerage account in 2023, you\u2019ll receive a\u00a01099-B, which will detail your transactions. You\u2019ll use that information for your\u00a02023 tax return,\u00a0filed in April 2024.

However, people who aren't subject to income tax withholding (such as freelancers) are often required to make quarterly estimated tax payments. If you're in that group, your dividend and capital gains tax would be due on the quarterly due date following the dividend receipt and/or sale.

If you aren't having enough tax withheld on your W-4 to cover the taxes incurred from the gain \u2014 or you expect the gain to have a big impact on your tax bill\u00a0\u2014 paying estimated taxes can also help you avoid a surprise or underpayment penalty when you file.

What is net investment income tax?

Some high-income investors also may be subject to an additional 3.8% tax called the net investment income tax. The IRS imposes this tax on either your net investment income or the amount by which your modified adjusted gross income exceeds a certain threshold (below), whichever one ends up being less.

The income thresholds for the net investment income tax are $250,000 for those married filing jointly, $125,000 for those married filing separately, and $200,000 for single filers and heads of household

Internal Revenue Service. Topic No. 559 Net Investment Income Tax. Accessed Mar 14, 2023.
View all sources
.

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How to pay lower taxes when selling stocks

1. Think long term versus short term

  • You might pay less tax on your dividends by holding the shares long enough for the dividends to count as qualified. Just be sure that doing so aligns with your other investment objectives.

  • Whenever possible, consider holding an asset for longer than a year, so you can qualify for the long-term capital gains tax rate when you sell. That tax rate is significantly lower than the short-term capital gains rate for most assets. But again, be sure that holding the investment for that long aligns with your investment goals.

2. Look into tax-loss harvesting

As a reminder, selling stock at a loss may come with tax advantages. The difference between your capital gains and your capital losses is called your \u201cnet capital gain.\u201d If your losses exceed your gains, however, that's called a "net capital loss," and you can use it to offset your ordinary income by up to $3,000 ($1,500 for those married filing separately)

Internal Revenue Service. Topic No. 409 Capital Gains and Losses. Accessed Jan 23, 2024.
View all sources
.

This can be helpful in years when the stock market is down or volatile. Any additional losses can be carried forward to future years to offset capital gains of up to $3,000 ($1,500 for those married filing separately) of ordinary income per year.

3. Hold the shares inside an IRA, a 401(k) or other tax-advantaged account

  • Dividends and capital gains on stock held inside a traditional IRA are tax-deferred, and tax-free if you have a Roth IRA. Dividends and capital gains on stocks in a regular brokerage account typically aren\u2019t.

  • Once the money is in your 401(k), and as long as the money remains in the account, you pay no taxes on investment growth, interest, dividends or investment gains. A Roth 401(k) has similar benefits as a Roth IRA: your investments grow tax-free and your money comes out tax-free in retirement.

  • You can convert a traditional IRA into a Roth IRA so that withdrawals in retirement are tax-free. But note, only post-tax dollars get to go into Roth IRAs. So if you deducted traditional IRA contributions on your taxes and then decide to convert your traditional IRA to a Roth, you\u2019ll need to pay taxes on the money you contributed, just like everyone else who invests in a Roth IRA.

  • If you invest with a robo-advisor, many offer free tax-loss harvesting.

\u00bb Get started: Review our list of the best robo-advisors

4. Call in a pro

Your situation may be more complicated, so consider talking to a qualified tax preparer, tax-focused CPA or financial advisor to help you make the right moves.

On a similar note...

Get more smart money moves \u2013 straight to your inbox
Sign up and we\u2019ll send you Nerdy articles about the money topics that matter most to you along with other ways to help you get more from your money.
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\n \n February 12, 2023\n \n \n \n \n \n Beginner\n \n \n
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\n When an asset is sold for a profit, Uncle Sam wants his share. Depending on your income level, your capital gains rate might be lower than your ordinary tax rate.\n
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Having a new stock in your portfolio can make you feel like a kid who's just unwrapped a holiday present. After a long wait and careful study, you chose what you wanted and now it's there, bright and shiny in front of you (on your screen, not the living room floor, of course).

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If shares of that stock rise, it can also be exciting to sell the stock and pocket some gains now that your initial investment is paying off. Unfortunately, there's a twist we all must face that saps some of the joy, just like going back to school when the holiday is over.

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We're talking, of course, about capital gains taxes.

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If you happen to sell a security, some other investment, or another asset at a higher price than you bought it, you've created a capital gain. That's considered income by the Internal Revenue Service (IRS) and, like any other type of income, Uncle Sam wants his share. (If you sell and lose money on the asset, that's considered a capital loss and has a different set of tax consequences\u2014but that's another discussion.)

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\n What are capital gains?\n

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From the standpoint of the IRS, capital gains are additional income and must be reported as such. Strictly speaking, the IRS considers any gain on any asset fair game. The gain is calculated by subtracting the adjusted cost basis of the asset from the amount you realized on the sale. That includes boats, cars, and stocks, as well as the profit you might make from selling that retro pair of basketball sneakers or your prized 1952 Mickey Mantle baseball card.

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\n What's the difference between long-term and short-term gains?\n

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In terms of taxes, plenty, according to the IRS. Assets that you hold for longer than a year qualify as long-term gains and are taxed at lower rates than ordinary income, which can give you a significant tax benefit. A profit on anything held for less than a year is classified as a short-term gain and is taxed at the same rate as your ordinary income, so there's no unique tax benefit tied to them.

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If you buy and sell an asset during a one-year period and make a profit, that's considered ordinary income and booked as a short-term gain. (There are some exceptions, such as gifts and inheritances.)

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\n What are the capital gains tax rates?\n

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For 2022 until at least 2025, if you record a short-term profit and add it to your ordinary income, the ordinary tax rates range from 10% to 37%. The maximum tax, if it included the 3.8% Net Investment Income Tax (NIIT) applied to individuals, estates, and trusts that have income above the statutory thresholds, would be 40.8% on short-term gains.

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Hold on to that asset for longer than a year before you sell it, and it falls into the long-term gains column. (Certain capital gains tied to partnership interests held in connection with the performance of investment services now\u00a0require a three-year holding period to be called a long-term gain. Again, that's another discussion.)

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\n Could tax rates for long-term gains change?\n

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Possibly. As of 2022, the tax rates for long-term gains rates range from zero to 20% for long-term held assets, depending on your taxable income rate. For the present, long-term capital gains taxes do not exceed 23.8%, including the 3.8% NIT.

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\n \n\n\n\n\n\n \n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n \n\n \n\n\n Table illustrates taxable income for single filers, married and filing jointly couples, and long-term 2022 capital gains rates.
\n \n \n \n\n \n \n \n\n \n\n \n \n \n \n \n \n \n \n\n \n \n Your taxable income (single) \n \n\n \n\n \n \n \n \n \n \n \n \n\n \n \n Your taxable income (married filing jointly) \n \n\n \n\n \n \n \n \n \n \n \n \n\n \n \n Long-term capital gains rate (as of 2022) \n \n
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\n Your taxable income (single)\n
\n \n \n $0-$40,400\n
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\n Your taxable income (married filing jointly)\n
\n \n \n $0-$80,800\n
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\n Long-term capital gains rate (as of 2022)\n
\n \n \n 0%\n
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\n Your taxable income (single)\n
\n \n \n $40,401-$44,850\n
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\n Your taxable income (married filing jointly)\n
\n \n \n $80,801-$505,600\n
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\n Long-term capital gains rate (as of 2022)\n
\n \n \n 15%\n
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\n Your taxable income (single)\n
\n \n \n Above $445,850\n
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\n Your taxable income (married filing jointly)\n
\n \n \n Above $505,600\n
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\n Long-term capital gains rate (as of 2022)\n
\n \n \n 20%\n
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Source:\u00a0Internal Revenue Service (does not include the NIT).

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However, elections do happen and power in Washington, D.C., changes, making it important to keep an eye on the White House to see if those rates change. Back in the late 1970s, the maximum long-term capital gains rate rose to near 40% for some investors with the biggest gains. The maximum rate recently fell to its lowest level ever.

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When it's time to cash out some of your capital gains, timing can be important. If an investor thinks Washington is likely to change rates soon, they might decide to hold on a bit longer if they think rates might go down or decide to get out earlier if they think rates could rise. It's up to the individual investor, of course, and depends on how quickly they need their profits.

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\n What about special taxation rules for derivatives?\n

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If an investor trades futures, options on futures, or options on broad-based indexes, such as the S&P 500\u00ae (SPX) or Nasdaq-100\u00ae (NDX), they get to claim special \"marked-to-market\" status under section 1256 of the U.S. Internal Revenue Code.

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Under this rule, regardless of whether an investor liquidated a position by the last trading day of the year, the IRS treats it as if they did and uses the closing price of that final trading day to figure the investor's unrealized gain or loss. The closing price is \"marked\" and used as the cost basis going forward.

\n\n

The profit and loss for tax purposes is split into two capital gains buckets\u201460% is considered long-term capital gains and 40% is short-term capital gains\u2014regardless of how long you held the position.

\n\n

Tax policy, marginal rates, and capital gains taxes can border on the complex\u2014and can sometimes be a moving target. And these are only federal rates; Many states tack on their own capital gains taxes. For details about your own personal tax situation, consult a tax or estate-planning professional.

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Learn about tax-smart strategies.\n
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More from Charles Schwab

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\n \n \n\n\n \n\n \n\n \n\n\n\n How to Use Direct Indexing as a Tax Strategy\n \n \n \n \n \n Direct indexing gives you access to the underlying stocks in your portfolio, allowing you to grab potential tax-loss harvesting opportunities. \n
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\n \n \n\n\n \n\n \n\n \n\n\n\n When Should You Pay Taxes on Discount Bonds?\n \n \n \n \n \n Tax-sensitive bond investors need to consider the tax ramifications when purchasing discount bonds.\n
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\n Related topics\n

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\n \n\n \n\n\n\n Taxes\n \n \n\n \n\n\n\n Tax Planning\n \n
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The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

\n\n

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

\n\n

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

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No tax advice is provided or intended. Please consult with a tax-planning professional with regard to your personal circumstances.

\n 0223-3SR1\n \n \n\n\n \n\n \n\n \n\n \n\n \n \n\n \n\n \n \n \n\n \n \n\n \n \n\n \n\n \n \n\n \n \n\n \n \n \n \n\n \n\n\n\n \n\n\n\n\n\n\n", + "page_last_modified": " Tue, 12 Mar 2024 19:05:35 GMT" + }, + { + "page_name": "Taxes on Stocks: What You Have to Pay, How to Pay Less - NerdWallet", + "page_url": "https://www.nerdwallet.com/article/taxes/taxes-on-stocks", + "page_snippet": "Investing in stocks is a great way to build wealth, but don't let taxes on stocks take you by surprise. Here's a guide to understanding taxes on stocks.Short-term capital gains tax is a tax on profits from the sale of an asset held for a year or less. Short-term capital gains tax rates are the same as your income tax bracket. \u00bb MORE: Not sure what tax bracket you\u2019re in? Learn about federal tax brackets. Long-term capital gains tax is a tax on profits from the sale of an asset held for longer than a year. Long-term capital gains tax rates are 0%, 15% or 20%, depending on your taxable income and filing status. Dividends and capital gains on stock held inside a traditional IRA are tax-deferred, and tax-free if you have a Roth IRA. Dividends and capital gains on stocks in a regular brokerage account typically aren\u2019t. You may have to pay capital gains tax on stocks sold for a profit. Any profit you make from selling a stock is taxable at either 0%, 15% or 20% if you held the shares for more than a year.", + "page_result": "\n\n \n \nTaxes on Stocks: What You Have to Pay, How to Pay Less - NerdWallet\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n \n
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Taxes on Stocks: What You Have to Pay and How to Pay Less

Learn how dividends and capital gains can affect your tax bill, and how you can reduce what you pay.
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Nerdy takeaways

  • You may have to pay capital gains tax on stocks sold for a profit.

  • Any profit you make from selling a stock is taxable at either 0%, 15% or 20% if you held the shares for more than a year.

  • If you held the shares for a year or less, you'll be taxed at your ordinary tax rate.

  • You may be able to reduce your taxes on stocks by holding investments in a tax-advantaged account, holding them for more than a year, and using losses to offset gains.

MORE LIKE THISTaxes

The stock market climbing to record highs might have some people thinking, "Is it time to start investing in stocks?" That's up to you.

Investing in stocks can be a great way to build wealth and financial security, but it\u2019s important to understand how taxes on the sale of stocks could affect your federal income tax bill.

Capital gains tax on stocks: Do you have to pay?

Yes. If you sell stocks for a profit, you'll likely have to pay capital gains taxes.

Generally, any profit you make on the sale of an asset is taxable at either 0%, 15% or 20% if you held the shares for more than a year, or at your ordinary tax rate if you held the shares for a year or less. Any dividends you receive from a stock are also usually taxable.

Do you pay taxes on stocks you don't sell?

No. Even if the value of your stocks goes up, you won't pay taxes until you sell the stock. Once you sell a stock that's gone up in value and you make a profit, you'll have to pay the capital gains tax. Note that you will, however, pay taxes on dividends whenever you receive them.

When the value of your stocks goes up but you haven't sold them, this is known as "unrealized gains."

Similarly, if the value of your stocks goes down and you haven't sold them, this is known as "unrealized losses." Selling a stock for profit locks in "realized gains," which will be taxed. However, you won't be taxed anything if you sell stock at a loss. In fact, it may even help your tax situation \u2014 this is a strategy known as tax-loss harvesting.

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Register for a free NerdWallet account or sign in to gain access to an exclusive one-hour, previously recorded webinar about tax filing and tax planning strategies. Watch on demand!
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How are stocks taxed?

There are two types of capital gains taxes on realized stock gains:

Short-term capital gains tax

Short-term capital gains tax is a tax on profits from the sale of an asset held for a year or less. Short-term capital gains tax rates are the same as your income tax bracket. \n\n\u00bb MORE: Not sure what tax bracket you\u2019re in? Learn about federal tax brackets.

Long-term capital gains tax

Long-term capital gains tax is a tax on profits from the sale of an asset held for longer than a year. Long-term capital gains tax rates are 0%, 15% or 20%, depending on your taxable income and filing status.

Long-term capital gains tax rates are usually lower than those on short-term capital gains. That can mean paying lower taxes on stock sales.

\u00bb MORE: See the capital gains tax rates

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How are dividends taxed?

For tax purposes, there are two kinds of dividends: qualified and nonqualified. The tax rate on qualified dividends is 0%, 15% or 20%, depending on your taxable income and filing status. This is usually lower than the rate for nonqualified dividends. The tax rate on nonqualified dividends, sometimes called ordinary dividends, is the same as your regular income tax bracket.

  • In both cases, people in higher tax brackets pay more taxes on dividends.

  • How and when you own a dividend-paying investment can dramatically change the tax bill on the dividends.

  • There are many exceptions and unusual scenarios with special rules; see IRS Publication 550 for the details

    IRS. About Publication 550, Investment Income and Expenses. Accessed Jan 23, 2024.
    View all sources
    .

\u00bb MORE: Learn more about how dividend taxes work

When do you have to pay taxes on stocks?

Taxes on stocks and dividends are incurred in the tax year when the stock is sold or the dividend payment is made.

By mid-February of the following year, you\u2019ll get paperwork from your brokerage that will help you tally up your total gains and losses to determine the tax bill. For example, if you sold securities through a brokerage account in 2023, you\u2019ll receive a\u00a01099-B, which will detail your transactions. You\u2019ll use that information for your\u00a02023 tax return,\u00a0filed in April 2024.

However, people who aren't subject to income tax withholding (such as freelancers) are often required to make quarterly estimated tax payments. If you're in that group, your dividend and capital gains tax would be due on the quarterly due date following the dividend receipt and/or sale.

If you aren't having enough tax withheld on your W-4 to cover the taxes incurred from the gain \u2014 or you expect the gain to have a big impact on your tax bill\u00a0\u2014 paying estimated taxes can also help you avoid a surprise or underpayment penalty when you file.

What is net investment income tax?

Some high-income investors also may be subject to an additional 3.8% tax called the net investment income tax. The IRS imposes this tax on either your net investment income or the amount by which your modified adjusted gross income exceeds a certain threshold (below), whichever one ends up being less.

The income thresholds for the net investment income tax are $250,000 for those married filing jointly, $125,000 for those married filing separately, and $200,000 for single filers and heads of household

Internal Revenue Service. Topic No. 559 Net Investment Income Tax. Accessed Mar 14, 2023.
View all sources
.

\"NerdWalletTaxes

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How to pay lower taxes when selling stocks

1. Think long term versus short term

  • You might pay less tax on your dividends by holding the shares long enough for the dividends to count as qualified. Just be sure that doing so aligns with your other investment objectives.

  • Whenever possible, consider holding an asset for longer than a year, so you can qualify for the long-term capital gains tax rate when you sell. That tax rate is significantly lower than the short-term capital gains rate for most assets. But again, be sure that holding the investment for that long aligns with your investment goals.

2. Look into tax-loss harvesting

As a reminder, selling stock at a loss may come with tax advantages. The difference between your capital gains and your capital losses is called your \u201cnet capital gain.\u201d If your losses exceed your gains, however, that's called a "net capital loss," and you can use it to offset your ordinary income by up to $3,000 ($1,500 for those married filing separately)

Internal Revenue Service. Topic No. 409 Capital Gains and Losses. Accessed Jan 23, 2024.
View all sources
.

This can be helpful in years when the stock market is down or volatile. Any additional losses can be carried forward to future years to offset capital gains of up to $3,000 ($1,500 for those married filing separately) of ordinary income per year.

3. Hold the shares inside an IRA, a 401(k) or other tax-advantaged account

  • Dividends and capital gains on stock held inside a traditional IRA are tax-deferred, and tax-free if you have a Roth IRA. Dividends and capital gains on stocks in a regular brokerage account typically aren\u2019t.

  • Once the money is in your 401(k), and as long as the money remains in the account, you pay no taxes on investment growth, interest, dividends or investment gains. A Roth 401(k) has similar benefits as a Roth IRA: your investments grow tax-free and your money comes out tax-free in retirement.

  • You can convert a traditional IRA into a Roth IRA so that withdrawals in retirement are tax-free. But note, only post-tax dollars get to go into Roth IRAs. So if you deducted traditional IRA contributions on your taxes and then decide to convert your traditional IRA to a Roth, you\u2019ll need to pay taxes on the money you contributed, just like everyone else who invests in a Roth IRA.

  • If you invest with a robo-advisor, many offer free tax-loss harvesting.

\u00bb Get started: Review our list of the best robo-advisors

4. Call in a pro

Your situation may be more complicated, so consider talking to a qualified tax preparer, tax-focused CPA or financial advisor to help you make the right moves.

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