Capital Gains are your profitsThe term “capital gains” simply refers to the money you earned on your investment – the profits. Since the majority of investors own stock equities in some way, we’ll use profits from a stock sale as our example throughout this article. When you sell a stock, you are only taxed on the profits – the amount you made – not the total amount of the transaction. Example: You bought 1 share of company XYZ at $10 and sold the share when the price hit $100. Your capital gains (profits) are $90.00 – the final price of the share ($100) minus what you paid to buy it ($10).
Short-Term Gains versus Long-Term GainsHow much of the $90 you owe in capital gains tax is determined by how long you owned the stock: Short-Term Rate (i.e. less than one year): If the time between the date you bought the stock and the date you sold the stock is less than one year, you pay your Federal Income Tax rate (the same percentage you pay on your wages or salary). See below for 2018’s tax rates. Long-Term Rate (i.e. one year or longer): If the time between the date you bought the stock and the date you sold the stock is more than one year, you pay your Capital Gains Tax Rate (also dependent on your total income). For 2018, the Capital Gains Tax Rates are:
- $51,700 or less: 0% (you pocket the entire $90)
- $51,701-$452,400: 15% (you owe $13.50 of the $90 profit)
- $452,401 or more: 20% (you owe $18.00 of the $90 profit)
What are the Federal Income Tax Brackets for 2018?Here are 2018’s Federal Income Tax Brackets:
- For Individuals:
- 10% up to $9,526
- 12% on $9,526 to $38,700
- 22% on 38,701 to $82,500
- 24% on $82,501 to $157,000
- 32% on $157,501 to $200,000
- 35% on $200,001 to $500,000
- 37% on any amount over $500,000
- For those Married Filing Jointly:
- 10% up to $19,050
- 12% on $19,051 to $77,400
- 22% on $77,401 to $165,000
- 24% on $165,001 to $315,000
- 32% on $315,001 to $400,000
- 35% on $400,001 to $600,000
- 37% on any amount over $600,00
Disclaimer: Eric "Irk" Jacobson and all other Get Irked contributors are not investment or financial advisers. All strategies, trading ideas, and other information presented comes from non-professional, amateur investors and traders sharing techniques and ideas for general information purposes.
As always, all individuals should consult their financial advisers to determine if an investing idea is right for them. All investing comes with levels of risk with some ideas and strategies carrying more risk than others.
As an individual investor, you are accountable for assessing all risk to determine if the strategy or idea fits with your investment style. All information on Get Irked is presented for educational and informational purposes only.