How to pay tax on trading stocks, bonds and mutual funds

If you sell stocks, bonds or mutual funds that you have held for more than a year, the proceeds are taxed at long-term income rates of 0%, 15% or 20%. Compare these figures to the top tax rate of 37% on ordinary income.

The rates of 0%, 15% and 20% of permanent income are based on established income limits that are adjusted annually for inflation. For 2022, the 0% rate applies to individuals with taxable income up to $41,675 on a single return, $55,800 for the head of a household, and $83,350 for a return collective. The 20% rate starts at $459,751 for a single filer, $488,501 for a head of household, and $517,201 for a joint filer. The 15% rate is for people with taxable income between 0% and 20%. The income limit is higher for 2023. For 2023, the 0% rate applies to individuals with taxable income up to $44,625 on a single return, $59,750 for heads of households, and $89,250 for joint returns. The 20% rate starts at $492,301 for a single filer, $523,051 for a head of household and $553,851 for a joint filer. The 15% rate is for people with taxable income between 0% and 20%. The favorable rate also applies to qualifying dividends (see below).

There is also a 3.8% surtax on investment income (NII) on top of the 15% or 20% income rate for single taxpayers with modified income of more than $200,000 and savings with $250,000. This additional 3.8% tax is due for NII less or more than modified AGI over $200,000 or $250,000.

If you sell an investment you’ve held for a year or less, the gain is short-term and taxed at your ordinary tax rate.

If you sell at a loss, the loss can offset your profit for the year, plus up to $3,000 in other income. Excess losses may be carried forward indefinitely each year, subject to the same tax, until the losses are exhausted.



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