Taxes and Stocks – What You Need to Know

So the first thing to remember whenever you’re involved in the purchase and sale of anything is that there’s more than likely gonna be a tax implication upon the sale of that asset, and that’s no different than with stocks or options, bonds for that matter. If you are buying stock, it is considered a capital asset. So when you purchase it, you start something called a holding period.

How Long is the Holding Period?
The length of your holding period determines how your profit will be taxed. If you hold the stock for less than a year before selling it, then it is considered a short-term gain and is taxed at your ordinary income tax rate. However, if you hold the stock for more than a year before selling it, then it is considered a long-term gain and is taxed at a lower capital gains tax rate.

What is the Capital Gains Tax Rate?
The current long-term capital gains tax rate is 20% for taxpayers in the highest tax bracket. For taxpayers in lower tax brackets, the capital gains tax rate is 0%, 15%, or 20%.

Remember, these are only the federal taxes that you will owe on your profits from selling stocks. You may also owe state taxes, depending on which state you live in.

So, when you’re thinking about buying or selling stocks, remember to factor in the taxes that you will owe on your profits. Depending on how long you hold onto the stock, your profit could be taxed at either your ordinary income tax rate or a lower capital gains tax rate. Just be sure to do your research so that you know how much you’ll owe come tax time!