Buying and selling stocks, for the wise investor, can be an easy way to make money multiply. But the wise investor knows that it’s not as simple as day-to-day or week-to-week gambling. You might hit a homerun on a stock that soars twenty percent in a month and, knowing the volatility of the market, want to sell it before its price starts dropping.
Congratulations, you’ve just made a twenty percent return on your investment. Why are the wise investors laughing, then?
You hear a murmur among the laughter: “capital gains tax.” The word “tax” drops like a weight in your stomach. Yes, a tax on your winnings. They are, after all, a form of income.
What is capital gains tax and how can you reduce it?
What is capital gains tax and how does a wise investor factor into into their investing strategy?
The simple answer is that they make long-term investments. We all want to materialize our gains quickly but doing so can hurt them more than you might expect.
Short-term capital gains tax affects short-term investments—buying a stock and selling it within one year. The important word here is “selling”: you only realize a gain or a loss when you sell the stock. Therefore, capital gains tax only comes into play when you sell a winning stock (capital gains tax affects all kinds of “capital assets“).
The short-term capital gains tax rates (investments held for at least one year and one day) are significantly higher than the long-term. Short-term rates equal the normal income tax rate. The rates depend on your tax bracket, but at every level, the long-term rate is lower than the short-term rate.
Those in the 10% and 15% income tax brackets will face 10% and 15% short-term capital gains taxes, but 0% long-term rates. In the higher brackets, though both rates increase, investors will still save 10% or more by holding stocks for more than a year.
The simple solution, therefore, is to invest with long-term goals in mind.
An investor who needs to sell a stock before a year is up can try to offset some of the gains by also selling a stock or stocks suffering losses. Capital gains tax only affects the net capital gain for the year: this is the total gains after all sales.
If you sell one stock at a $2,000 gain and another at a $1,000 loss, you’ll cut your net gains in half and reduce the amount on which you can be taxed. It sounds like simply losing money in a different way, and it is. But it eliminates part of a loss on stock while reducing the tax at the same time, minimizing the overall loss.
The bottom line is that you’ll have to pay up somehow. Maximizing returns involves more than simply finding the golden stock. The wise investor understands the differences between short-term and long-term investing, factors capital gains tax into their plan and, when circumstances call for a short-term sale, uses a strategy that realizes other losses to offset the gains and reduce the taxable amount.
string(3605) "
Buying and selling stocks, for the wise investor, can be an easy way to make money multiply. But the wise investor knows that it's not as simple as day-to-day or week-to-week gambling. You might hit a homerun on a stock that soars twenty percent in a month and, knowing the volatility of the market, want to sell it before its price starts dropping.
Congratulations, you've just made a twenty percent return on your investment. Why are the wise investors laughing, then?
You hear a murmur among the laughter: "capital gains tax." The word "tax" drops like a weight in your stomach. Yes, a tax on your winnings. They are, after all, a form of income.
What is capital gains tax and how can you reduce it?
What is capital gains tax and how does a wise investor factor into into their investing strategy?
The simple answer is that they make long-term investments. We all want to materialize our gains quickly but doing so can hurt them more than you might expect.
Short-term capital gains tax affects short-term investments—buying a stock and selling it within one year. The important word here is "selling": you only realize a gain or a loss when you sell the stock. Therefore, capital gains tax only comes into play when you sell a winning stock (capital gains tax affects all kinds of "capital assets").
The short-term capital gains tax rates (investments held for at least one year and one day) are significantly higher than the long-term. Short-term rates equal the normal income tax rate. The rates depend on your tax bracket, but at every level, the long-term rate is lower than the short-term rate.
Those in the 10% and 15% income tax brackets will face 10% and 15% short-term capital gains taxes, but 0% long-term rates. In the higher brackets, though both rates increase, investors will still save 10% or more by holding stocks for more than a year.
The simple solution, therefore, is to invest with long-term goals in mind.
An investor who needs to sell a stock before a year is up can try to offset some of the gains by also selling a stock or stocks suffering losses. Capital gains tax only affects the net capital gain for the year: this is the total gains after all sales.
If you sell one stock at a $2,000 gain and another at a $1,000 loss, you'll cut your net gains in half and reduce the amount on which you can be taxed. It sounds like simply losing money in a different way, and it is. But it eliminates part of a loss on stock while reducing the tax at the same time, minimizing the overall loss.
The bottom line is that you'll have to pay up somehow. Maximizing returns involves more than simply finding the golden stock. The wise investor understands the differences between short-term and long-term investing, factors capital gains tax into their plan and, when circumstances call for a short-term sale, uses a strategy that realizes other losses to offset the gains and reduce the taxable amount.
The Momager May Be Worth More Than You Think… Kris Jenner is a pop culture icon for many reasons. While you may have watched her meteoric rise to fame on Keeping Up with the Kardashians — which originally debuted on E! — she’s actually been a fascinating figure in the public eye for ages. As
In the 1980s movie Little Shop of Horrors, the protagonist Audrey fantasizes about owning a house of her very own. She doesn’t ask for much: just a simple one-storey place with a washer, dryer, and bedding will do. And while this moment in the film is intended to satirize the American Dream by underlining how
Traditional weddings can be incredibly stressful, not to mention super pricey – many newlyweds couldn’t buy a house with that money. What’s supposed to be the happiest day of your life can often feel like an endless quest for absolute perfection – almost as if the ceremony doesn’t come off flawlessly, the marriage itself will
Talking about student loans can be an uncomfortable subject. Considering how stressful your debt pay-off journey can be, it’s easy to get overwhelmed by how much you still owe. Fortunately, there are a few ways to successfully pay off your student loans in a speedy fashion so you can finally breathe that sigh of relief
When you think of personal finance, what springs to mind? Kevin O’Leary of Shark Tank fame? Dave Ramsay yelling into a podcast mic? Finance bros tracking their Bitcoin? Unfortunately, these are the images we’re constantly bombarded by. So they’re the archetypes overwhelmingly represented in personal finance. But it’s not all Chads in down vests and
I’ve been thinking a lot about goal setting in the New Year…and not in the cliche resolution way. Not in the way that I get overzealous and aim to save $10,000 in one year, change my entire life around, and find the apartment of my dreams. Not in the way that sets me up for
It’s almost 2024, but if there’s one thing you don’t want to save until the new year it’s putting your finances in order. When it comes to tackling money goals, the best time to start is always yesterday. But these days — given our digital-first landscape and online bank accounts — financial success takes more
Everyone can always use some extra cash. There’s gotta be an easier way than working overtime or wasting your life on obscure side hustles. I’m sure you’ve had friends say, “just invest your money, bro” – if only it were that simple. With so many personal investment apps out there, it can be tough to
After years of talk, the world’s most familiar digital payment platform, Paypal, is finally embracing cryptocurrency as a form of accepted currencies for all its US users. Bitcoin, Ethereum, Bitcoin Cash, and Litecoin will be the cryptocurrencies accepted by PayPal. “The shift to digital forms of currencies is inevitable,” said Dan Schulman, president, and CEO
If you’re savvy when it comes to apps but could use some direction in your investing game, combine the two and go from investing newbie to knowledgeable with tips you can tap into. Entering into the world of investing can be daunting, so invest your time before you invest your hard-earned dough. These 5 apps
