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Holding onto stocks for a long period of time may not be your cup of tea, but it can be a saving grace on your tax return. With the new capital gains tax thresholds, the IRS has made it even more appealing to hold your stock investments for at least a year.
If you’re anxious to sell stocks within a short period of time, here’s what you should know before pressing the sell button.
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Understand how capital gains taxes work
If you sell stock for a profit in a traditional brokerage account, you can expect to receive fancy forms from your broker during tax time. Anytime you sell investments for a profit, you can trigger capital gains taxes.
Depending on how long you’ve held the stock, you’ll either be taxed at short-term or long-term capital gains tax rates. Don’t worry about keeping track of all the details manually — your broker will help you out and provide a report of your activity.
Here’s what you need to know: Short-term capital gains don’t receive favorable treatment. In this case, short term means you held your stock for a year or less, and the IRS will tax you at the same rates they would on the income you earn from a job.
Here’s a peek at the 2022 short-term capital gains rates that you may want to stay away from if you aim to keep more of your profits.
|
Rate |
Single |
Married Filing Jointly |
Head of Household |
|---|---|---|---|
|
10% |
Up to $10,275 |
Up to $20,550 |
Up to $14,650 |
|
12% |
$10,276 to $41,775 |
$20,551 to $83,550 |
$14,651 to $55,900 |
|
22% |
$41,776 to $89,075 |
$83,551 to $178,150 |
$55,901 to $89,050 |
|
24% |
$89,076 to $170,050 |
$178,151 to $340,100 |
$89,051 to $170,050 |
|
32% |
$170,051 to $215,950 |
$340,101 to $431,900 |
$170,051 to $215,950 |
|
35% |
$215,941 to $539,900 |
$431,901 to $647,850 |
$215,951 to $539,900 |
|
37% |
Over $539,900 |
Over $647,850 |
Over $539,900 |
Data source: IRS. Table by author.
The tax deal you’ve been waiting for
If you’re looking for a sweet deal on your tax bill, you have to aim for long-term capital gains. These special tax rates are reserved for people who hold their investments for over a year.
For 2022, those long-term capital gains rates are even more attractive. The IRS expanded the income range for you to qualify for the most favorable rates before you enter the next tax bucket.
Most investors will fall into the 15% tax bucket. If you’re single and earn between $41,676 and $459,750, you can lock in the 15% tax rate for 2022. The income threshold is a little higher for married couples filing jointly. Married filers can earn up to $517,200 before they are pushed into the 20% bucket.
If you’re a single filer earning under $41,675 (married couples earning less than $83,350), you get to unwrap the best long-term capital gains rate. Filers who earn under those amounts don’t have to pay a dime in capital gains taxes — the IRS will allow you to enjoy every penny of your profits.
Take a look at the 2022 capital gains rates per tax bracket to see where you stand.
|
For Single Filers With Taxable Income of … |
For Married Joint Filers with Taxable Income of … |
For Heads of Households with Taxable Income of … |
… This Is the Long-Term Capital Gains Rate |
|---|---|---|---|
|
$0 to $41,675 |
$0 to $83,350 |
$0 to $55,800 |
0% |
|
$41,676 to $459,750 |
$83,351 to $517,200 |
$55,801 to $488,500 |
15% |
|
Over $459,750 |
Over $517,200 |
Over $488,500 |
20% |
Data source: IRS. Table by author.
Don’t miss the best tax rates for investors
Although earning money from your investments is the goal, you want to track how much money you’ll be able to actually keep before you sell. Taxes can eat into your profits and leave you with less returns than you expected.
On the flip side, don’t let taxes lead every decision you make. Your goal is to secure the best mix of investments that align with your goals and risk tolerance. If a company’s outlook strays away from your investment thesis, there’s no shame in dumping a stock in favor of another one. The next stock you add to your collection may be just what you need to make the most of your portfolio.