what do you have to earn short term to get the equivalent long-term gain?

Discussion in 'Taxes and Accounting' started by stockmarketbeginner, Jan 22, 2018.

  1. Hello,

    Suppose you are in the 30% income tax bracket, vs. a 15% capital gains tax bracket. Then:

    For long-term capital gains tax, you need to earn 117.7 dollars to end up with 100 dollars after tax:
    117.7(.85) = 100

    For short-term trades with a 30% income tax rate, you need to earn 142.9 dollars to end up with 100 dollars after tax:
    142.9(.7) = 100

    This means you need to earn 142.9 vs. 117.7.
    142.9/117.7= 1.21

    So your percentage gain has to be 21% higher via short-term trading to match what you would get in a long term trade.

    So if you could get 20% in a long term trade, you would have to get 20(1.21) = 24.2% gain in a short term trade to get the same amount after tax.

    Is this concept correct?

    The amount is higher, but not insurmountably so. This means if you see a good short term opportunity, the higher tax should not shy you away from taking it.
     
  2. Remember your probabilities -- one solid half of Expected Value.....

    To wit:
    Taxes are 100% going to come.
    One dollar on debt reduction is 100% a dollar of Net Position improvement.

    Earning money? Revenues? "Ewwwww."