Large capitals gains are good things for the balance of your investment accounts, but bad news when … [+]
getty
Although the stock market had a rough January, if you have been investing for any amount of time, you have likely accumulated some capital gains over the past few years. Many projections for the rest of 2022 point to some positive stock market returns. Earning money on your investments in the stock market is great, but you need to be aware of the capital gains taxes that you may owe when buying and selling your holdings.
How much you end up owing in capital gains taxes on your investments’ gains will mostly depend on three factors.
1) How much the value of your investments has increased
2) How long you have held your investments
3) Your overall income from all sources
When you sell an investment (stocks, bonds, mutual funds, ETFs, real estate, cryptocurrency) for more than your cost basis (essentially, what you paid for the investment), your net profit will be taxed as either a long-term or short-term capital gain at the federal level. At the state level, your capital gains taxes due will depend on your particular state. For example, California taxes capital gains like regular income, with a top tax bracket of 13.3% at the state level. OUCH!
How long you have held an investment will determine whether your gains will be taxed at long-term or short-term capital gains rates. If you have owned your investment for more than one year, you will be taxed at long-term capital gains rates. For investments held less than a year, your capital gains will be taxed at the short-term capital gains rates.
Let’s take a look at how your long-term capital gains are actually taxed at the federal level. Generally, long-term capital gains will have favorable tax treatments when compared to the taxes owed on short-term capital gains. Long-term capital gains are taxed at the rate of 0%, 15%, or 20%, depending on a combination of your taxable income and marital status.
For single tax filers, you can benefit from the zero percent capital gains rate if you have an income below $41,675 in 2022. Most single people with investments will fall into the 15% capital gains rate, which applies to incomes between $41,675 and $459,750. Single filers with incomes more than $459,750 will get hit with the 20% long-term capital gains rate.
The brackets are a tiny bit bigger for married couples who file their taxes jointly, but most will see …….
Source: https://www.forbes.com/sites/davidrae/2022/02/07/what-are-the-new-capital-gains-rates-for-2022/