On-screen text: 2020 long-term capital gains tax ratesĪnimation: Buckets show the breakdown of $200,000 in wages for a 2020 single filer using a standard deduction. For stocks, the long-term capital gains tax rates are generally much lower than the ordinary income tax rates. Proceeds from investments held for more than a year are typically classified as long-term capital gains. Capital gains could push you into a higher tax bracket if it pushes your income above the bracket limit.įor reference, marginal income tax rates for the 2020 tax year ranged from 10% to 37%, but rates can change over time, so it's best to check with the IRS for specifics. Narrator: So, if you saw $12,000 in short-term capital gains, it would count as part of your highest tax bracket. Any capital gains would be added to the top of that for tax purposes.Īnimation: 22% bucket increases to $45,400, and an additional bucket appears that taxes $8,475 at 24%. So, let's say you earned $82,000 in wages. Capital gains are stacked on top of your ordinary income. Narrator: They're typically taxed at the same rate as your ordinary income, which is determined by the marginal tax bracket you fall into. On-screen text: 2020 tax brackets with short-term capital gainsĪnimation: Buckets show the breakdown of $82,000 in wages for a 2020 single filer using a standard deduction. Proceeds from investments you sell after holding for a year or less are generally classified as short-term capital gains. There are two types of capital gains: short term and long term. So, how much are capital gains taxed? It mainly depends on two factors: how long you held the investment and your income level. We're focusing on stocks in this video, but be aware that capital gains taxes also apply to other types of investments like real estate, bonds, and mutual funds. That is considered a realized capital gain and is a taxable event. Let's say you decide to sell the stock at $60. Note that other types of income from stocks, like dividends, may still be subject to taxes, but these may not be considered capital gains. No matter how long you hold the stock or how much its price changes, you won't be taxed on gains as long as you don't close the position and gains remain unrealized. At this point, you've gained $10, but it's an unrealized gain, because you don't actually profit until your position is closed. You buy a share of stock XYZ for $50, and over the course of a year, it increases to $60. Let's say you're an average investor and have a regular taxable brokerage account. Taxes can be complex and vary based on a lot of factors, so it's always best to consult the IRS or a tax professional to understand your specific situation. Let me note up front that in this video we're just covering the basics. Taxes can impact the growth of your portfolio, so it's important to understand how capital gains taxes work and learn some strategies to potentially minimize them. As with most kinds of profits, they're subject to taxes. These types of profits are known as capital gains. Narrator: One of the main ways to profit from investing is to buy assets at one price and then sell them at a higher price.
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