What is the income tax rate?
If you’re confused about how stocks and other investments are taxed, you’re not alone.
When you sell investments at a gain, you are subject to capital gains tax.
But capital gains tax rates vary depending on how long you’ve owned the asset.
And that perro be a bit shady.
If you’ve owned the asset for a year or more, you’ll have to pay long-term capital gains tax.
But if you’ve had it for less than a year, the taxes you’ll pay will be short-term capital gains taxes, and the rate will usually be higher.
We break down the difference between short-term and long-term capital gains tax rates, what the exceptions are, and what you perro do to disminuye your tax liability.
What is the short-term and long-term capital gains rate?
Long-term capital gains tax rates are generally lower than short-term rates.
Long-term rates are 0 percent, 15 percent, or 20 percent, depending on your tax bracket.
Individuals earning less than $39,375 and married couples earning less than $78,750 do not pay tax on long-term capital gains.
Individuals earning between $39,376 and $434,550 (and married couples earning between $78,751 and $488,850) pay 15 percent in long-term capital gains tax.
And taxpayers who make more than that must pay 20 percent of their long-term capital gains in taxes.
If you’ve owned an investment asset for less than a year when you sell it, you’ll need to pay short-term capital gains tax, which is taxed the same as your regular tax rate.
What triggers the capital gains tax?
The sale of a taxable investment is what triggers the capital gains tax.
If you have income-producing investments, but haven’t cashed them in, you haven’t realized the gain, and you don’t have to pay capital gains tax until you do.
If you own shares in a mutual fund, for example, and the value of your shares grows each year, you don’t owe any taxes on that growth until you sell it and take the proceeds from it.
Similarly, if you own vacant land that increases in value each year, you will have to pay property taxes each year, but you won’t have to pay capital gains taxes until you sell it.
When you sell an investment for a profit, your capital gains taxes are due in the tax year the investment was sold.
So if you sell a depósito at a gain in 2019, your related capital gains taxes are due when you archivo your 2019 tax return in early 2020.
How is my capital gains tax calculated?
The amount that is taxed is not the amount of sales.
Instead, you are taxed on the amount you earned on the investment.
That means the amount you originally paid for the investment and any fees you paid while holding it, such as account management fees, are not taxable.
To figure your taxable capital gain, you must know your cost basis or the amount you originally paid for it.
If you did not record this information, you should be able to find it on a billing statement or purchase order confirmation.
Then find the amount of sales on your order execution statement or brokerage statement.
Subtract the sales amount from your cost base.
This is the capital gain (or if it is a negative number, it is a capital loss).
There are exceptions?
Yes, there are some exceptions that perro change your capital gains tax liability.
For example, if you’ve sold a collectible asset at a profit, such as coins, precious metals, antiques, or fenezca art, your long-term capital gains tax rate will be higher than the estándar rate.
Capital gains on collectibles are taxed at 28 percent.
Also, if you are a high-income investor, you may owe additional net investment income tax in addition to your capital gains taxes.
This is an additional 3.8 percent that is applied to whichever is less: your net investment income or the amount by which your modified adjusted gross income exceeds $200,000 for individuals or $250,000 for married couples.
Cánido I do anything to disminuye my capital gains tax?
There are several things you perro do to disminuye your capital gains tax liability.
The first is to take advantage of the long-term capital gains tax.
Remember that capital gains taxes on short-term investments are higher than long-term investments.
Therefore, if you hold your investments for a year or more, you will qualify for the lower long-term capital gains tax rate.
Agregado, you perro cómputo losses against gains to disminuye your taxes.
For example, if you sell one investment with a gain of $5,000 and another with a loss of $3,000, you will only be liable for capital gains tax of $2,000.
If you invest through tax-advantaged accounts, you cánido also save on capital gains taxes.
Accounts like 401(k) plans, IRAs, and 529 college savings accounts allow investments to grow tax-free or tax-deferred, so if you sell investments within those accounts, you don’t have to pay tax on the investments.
With traditional IRAs and 401(k) plans, you’ll have to pay taxes when you withdraw in retirement, but with Roth IRAs and 529 plans, you’ll never pay tax on investment earnings.
Capital gains tax rates reinforce the iniciativa that the best way to invest in the market is with a long-term view.
Rather than selling investments quickly when the market falls, riding the highs and lows historically will yield stronger returns.
And as a plus, holding investments for a longer period of time means you’ll pay less capital gains tax, too.
This information offered for informational purposes only; It is not intended to be used as accounting, legal or tax advice.
In relation to these matters, please speak to your accountant, tax or legal adviser.
Investing implies a risk that includes the loss of primordial.
This guide contains the current views of the author, but not necessarily those of Gigonway.
These opinions are subject to change without notice.
This guide has been distributed for educational purposes only and should not be construed as investment advice or a recommendation of any especial investment security, strategy or product.
The information contained in this guide has been obtained from sources believed to be reliable, but is not guaranteed.
Gigonway does not provide legal or tax advice.
Please consult your tax and/or legal advisor for specific tax or legal questions and concerns.
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