Hey Guys, I'm new to buying and selling stocks but I have recently purchased some stocks and was wondering how they tax stocks. I heard once that if you hold for over a year you don't get taxed. Any thoughts on any of this? Sorry for the "newbie" question. Thanks
Taxes are effected by the gain or loss of your transaction. Buy for $100, sell for $150, then your taxable portion is $50. If it is held for less than a year it is short term capital gain, taxed at your ordinary rate, typically 28% up to about 35%. If it is held for more than a year it is long term capital gain and taxed at the capital gain rates, max'd at 20%. If you are considered a broker/dealer or daytrader and hold & trade stocks as your business, then it is ordinary no matter hold long you hold the investment. It will be considered inventory and will be ordinary trade or business income subject to ordinary rates. If you have losses, they will offset your gains. You are allowed to offset up to $3K of capital losses against your ordinary income and the rest is suspended until you can offset it with capital gains (which is unlimited) or use up the losses at a rate of $3K a year against your ordinary income. If you have a large chunk of losses sitting out there and some gains you want to take advantage of, then year end tax planning moves you to sell your gains to offset the losses triggered or vice versa and then take alternative positions in the market. Watch out for wash sales, but there are certain strategies to take to keep the nature of the investment similar in your gain column and not trigger the wash sale rules. It can get tricky sometimes dealing with the tax laws.