Capital gains taxes: a simple walkthrough

Curious of how much money you’ll have to fork up to the IRS in capital gains tax when you cash in your profits? If so, you’re in the right place. This post was tailored just for you.

This topic was requested by Sonia from the discord group. If you aren’t a member yet be sure to join to get your voice heard.

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Let’s get started!

What are capital gains?

what are capital gains?

Capital gains are the profits from the sale of an asset such as the shares of a particular stock, property, or business.

These profits – as well as the losses – are reported when you file your personal tax return for the year.

The community who requested this article surround the AMC and GameStop phenomenon – yup, the awesome apes and rebels fighting the corporate financial system. So, in honor to this growing community, this discussion will be on the capital gains tax of a stock.

Capital gains tax

Capital gains taxes are the taxes you will owe after taking profits from a particular stock.

A lot of you are wondering how much your actual cut will be once you begin to take profits as a shareholder.

What will be my tax rate?

Now this will vary for each and every one of you retail investors. There are 3 main variables that will determine this:

  1. How long you’ve held the stock for before selling
  2. How much you profit
  3. Your tax bracket (if you filed single, married, etc.)

Here’s how this works.

Short-term capital gains

Short-term capital gains tax is a tax on profits from the sales of a stock held less than a year.

What is the tax rate on short-term capital gains?

10%, 12%, 22%, 24% 32%, 35%, or 37%.

This capital gains tax is going to apply to most AMC and GME shareholders.

Long-term capital gains

Long-term capital gains tax is a tax on profits from the sale of a stock held for over one year.

What is the tax rate on long-term capital gains?

0%, 15%, or 20%.

Long-term capital gains will allow retail investors to keep more of their profit.

Profit and Income Tax Bracket

Profit and income tax bracket

The two tax brackets charts below should provide you with a definitive answer as to what tax rate you will have on your profits.

The taxable income sections refer to your profits$. This will depend on 1) the capital gains and 2) whether you’re filing singe, married filing jointly, married but filing separately, or claiming head of household.

Filing Single or Married Filing Jointly

Income tax bracket single and married filing jointly
Source via. kiplinger

The above tax bracket shows your tax rate if you’re filing single or married jointly.

Married Filing Separately or Head of Household

Income tax bracket married filing separately or head of household
Source via. kiplinger

This tax bracket is if you’re filing married and filing separately, or are head of household.

“I hope this information will allow you to make a great financial commitment to maximize your profits when filing taxes next year. My mission in life is to help you make the best financial decisions possible and set you on the path towards your financial freedom. “

Frank Nez

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