No one likes paying taxes. Sure, the government can’t run without your tax dollars, but giving away a sizable percentage of your income each year is like letting someone else eat the first big slice of your birthday cake.
Paying taxes on your investments is a whole different issue. If you invest in a stock and watch it grow over the years, doubling and tripling your initial purchase price, the absolute last thing you want to do is give some of that growth. It’s like watching someone else take credit for your hard work.
Unfortunately, there’s no escaping the inevitable. Uncle Sam will always want his cut, regardless if you made 90% or 9 cents off each share. Before you pay in April, however, there are some important things you have to know about taxes on stocks — and it could end up saving you a whole lot.
If you buy a stock, you don’t have to pay taxes on it until you sell it.
If you sell your stock or asset, you’ll have to pay capital gains taxes on however much it increased from when you first purchased it.
If you buy a stock and sell it for a capital gain (or profit) under 12 months, that capital gain will be taxed as part of your regular income.
Selling a stock at a capital gain after keeping it for more than 12 months is considered a long-term capital gain.
It is subjected to different tax rates. The tax rate for long-term capital gains is anywhere between 0-20%. Certain stock sales are subjected to rates higher than 20%.
If you own multiple stocks but sell one at a capital gain and one at a capital loss (a decrease in value on your original purchase price), you can subtract the loss from the gain.
This is called net capital gains. Say you make $8 off one stock sale and lose $7 on another stock sale. The difference between your gains and your losses is $1, and you will only have to pay capital gains taxes on that $1 (your net capital gains).
Stocks aren’t the only investments you must pay taxes on.
Bonds are taxed at different rates if they were issued by the government or a corporation. Mutual funds are also subjected to different tax rates and methods, depending on what the fund invests in and a variety of other factors. Though, if you’re part of a mutual fund, you could probably afford to pay someone to figure out just how much you owe.
The bad news here is that if you invest in something, you’re going to pay taxes on it. This is also true for interest generated in savings accounts, money market accounts, and related investment vehicles.
The good news? Paying more taxes means you’re making more money, and hopefully you come out ahead when you’ve sent your check off to the IRS.
Share this knowledge with your friends below. It could help you come tax day!