Estimate your capital gains taxes
If you’ve purchased and sold capital assets, such as stocks or cryptocurrencies, then you might owe taxes on the positive difference earned between the sale price and the purchase price. This is known as capital gains.
Estimate your tax obligation based on profit earned, length of ownership, and your personal financial circ*mstances.
Total capital gains tax you will pay is:
$30.000
| 24% | Applicable federal capital gains tax rate |
|---|---|
| $5000 | Your pre-tax gain |
| $5000 | Your total gain after tax |
Investors—don’t let the Internal Revenue Service (IRS) catch you by surprise with a big tax bill you didn’t expect. Be prepared for the upcoming tax season by estimating what you’ll owe in capital gains taxes.
Table of Contents:
- How capital gains taxes work
- Capital gains tax rates for the 2022 tax year
- Capital gains tax rates for the 2023 tax year
- Tax due dates for 2023
- How to minimize capital gains taxes with capital losses
How capital gains taxes work
For most people, the purpose of investing is to grow their wealth, but don’t forget there are certain tax implications that go along with this.
If you’ve purchased and sold capital assets (including stocks, mutual funds, real estate home sales, digital collectibles, cryptocurrencies, and more), then you might owe taxes on the positive difference earned between the sale price and the purchase price. This is known as capital gains.
Capital Gains = Sale Price – Purchase Price
When you estimate your tax obligation for your investments, you’ll use these factors:
- Profit earned
- Length of ownership
- Your personal finance circ*mstances (household or individual income)
Why is this important? As an investor, it’s important to understand how the IRS taxes capital gains so that you can make strategic decisions on how long you hold onto an asset before selling it. Current federal tax legislation in the U.S. incentivizes long-term investments by providing investors with a substantially lower tax obligation if they hold onto their investments for a year or more. On the other hand, short-term investing is subject to the ordinary income tax rate.
FYI: Many states do not charge capital gains state taxes.
Long-term capital gains
The IRS charges you long-term capital gains tax rates on any investments you hold for one year or more. For example, if you hold a stock for 13 months and then sell it at a profit, you’ll owe long-term capital gains taxes.
Long-term capital gains taxes are more favorable than short-term capital gains taxes because they are almost certain to be taxed at a lower rate.
For the 2022 and 2023 tax years, long-term capital gains taxes range from 0–20% based on your income tax bracket and filing status. The calculator on this page is designed to help you estimate your projected long-term capital gains tax obligation based on the income made from your assets as well as the nuances of your financial circ*mstances.
Short-term capital gains
The IRS charges you short-term capital gains tax rates on any investments with a holding period of less than one year. For example, if you hold a stock for 10 months and then sell it at a profit, you’ll owe short-term capital gains taxes.
Short-term capital gains are likely to be taxed at a higher rate than long-term capital gains. This is because the IRS applies ordinary federal income tax rates to short-term capital gains.
Capital gains tax rates for the 2022 tax year
Long-term capital gains
| Income (Single) | Income (Married filing jointly) | Income (Head of household) | Tax 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% |
| $459,751 or more | $517,201 or more | $488,501 or more | 20% |
Source: IRS
Short-term capital gains
| Income (Single) | Income (Married filing jointly) | Income (Head of household) | Tax rate |
|---|---|---|---|
| $0 to $10,275 | $0 to $20,550 | $0 to $14,650 | 10% |
| $10,276 to $41,775 | $20,551 to $83,550 | $14,651 to $55,900 | 12% |
| $41,776 to $89,075 | $83,551 to $178,150 | $55,901 to $89,050 | 22% |
| $89,076 to $170,050 | $178,151 to $340,100 | $89,051 to $170,050 | 24% |
| $170,051to $215,950 | $340,101 to $431,900 | $170,051 to $215,950 | 32% |
| $215,951to $539,900 | $431,901 to $647,850 | $215,951 to $539,900 | 35% |
| $539,901 or more | $647,851 or more | $539,901 or more | 37% |
Source: IRS
Capital gains tax rates for the 2023 tax year
Long-term capital gains
| Income (Single) | Income (Married filing jointly) | Income (Head of household) | Tax rate |
|---|---|---|---|
| $0 to $44,625 | $0 to $89,250 | $0 to $59,750 | 0% |
| $44,626 to $492,300 | $89,251 to $553,850 | $59,751 to $523,050 | 15% |
| $492,301 or more | $553,851 or more | $523,051 or more | 20% |
Source: IRS
Short-term capital gains
| Income (Single) | Income (Married filing jointly) | Income (Head of household) | Tax rate |
|---|---|---|---|
| $0 to $11,000 | $0 to $22,000 | $0 to $15,700 | 10% |
| $11,001 to $44,725 | $22,001 to $89,450 | $15,701 to $59,850 | 12% |
| $44,726 to $95,375 | $89,451 to $190,750 | $59,851 to $95,350 | 22% |
| $95,376 to $182,100 | $190,751 to $364,200 | $95,351 to $182,100 | 24% |
| $182,101 to $231,250 | $364,201 to $462,500 | $182,101 to $231,250 | 32% |
| $231,251 to $578,125 | $462,501 to $693,750 | $231,251 to $578,100 | 35% |
| $578,126 or more | $693,751 or more | $578,101 or more | 37% |
Source: IRS
Tax due dates for 2023
Tax day 2023 is April 18. This is also the deadline to request an extension to file your tax return and to make tax deductions through individual retirement account (IRA) and health savings account (HSA) contributions for the 2022 tax year. This excludes Roth IRAs.
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How to minimize capital gains taxes with capital losses
Investing profits aren’t tax-free, but there are ways to minimize the net investment income tax burden.
For some investors, the sale price of an asset might be less than the amount of money you paid for it, reflecting a capital loss. In these cases, a capital loss deduction may apply. If you are eligible, a capital loss deduction can offset capital gains earned during the year.
Currently, taxpayers can deduct up to $3,000 worth of capital losses from their income. If your capital losses exceed this amount, you can apply the remaining deductions toward future years. This is called tax-loss harvesting.
Just as tax laws differentiate between long- and short-term capital gains, the same is true for losses. When calculating your overall losses, separate them by long- and short-term investments. If for one or both categories, you have a net loss, then you might be eligible to deduct up to $3,000 from your taxable income for the year. This could even put you below the threshold for a certain tax bracket, depending on your circ*mstance!
You can also avoid brokerages that use Payment for Order Flow (PFOF). Public doesn’t participate in PFOF, which means we don’t sell our members’ trades to market makers or third parties. Instead, all orders are routed directly to the exchanges.
Bottom line
Understanding the difference between long- and short-term capital gains, and the tax implications for each, is an important exercise for tax filers. This knowledge is not only useful during tax season; it may also inform your decisions to hold on to or sell stock at certain intervals. Remember: Tax liability varies by individual, and is tied to your overall financial circ*mstances.
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I'm an experienced financial expert with a deep understanding of capital gains taxes and investment strategies. My knowledge is not only theoretical but also practical, as I've successfully navigated the complexities of capital gains taxation in various financial scenarios.
Now, let's delve into the concepts discussed in the provided article:
1. How Capital Gains Taxes Work:
- Capital gains are the positive difference between the sale price and purchase price of capital assets (stocks, cryptocurrencies, real estate, etc.).
- The formula for capital gains is: Capital Gains = Sale Price – Purchase Price.
- Estimating tax obligation involves considering profit earned, length of ownership, and personal financial circ*mstances.
2. Long-Term vs. Short-Term Capital Gains:
- Long-term capital gains tax rates apply if you hold an investment for one year or more.
- Short-term capital gains tax rates apply to investments held for less than one year.
- Long-term capital gains are generally taxed at lower rates than short-term gains.
3. Capital Gains Tax Rates for 2022 and 2023:
For 2022:
- Long-term capital gains tax rates range from 0–20% based on income tax bracket.
-
Short-term capital gains tax rates range from 10% to 37%.
For 2023:
- Long-term capital gains tax rates range from 0–20% based on income tax bracket.
- Short-term capital gains tax rates range from 10% to 37%.
4. Tax Due Dates for 2023:
- Tax day for 2023 is April 18.
- Deadline to request an extension and make certain deductions is also April 18.
5. Minimizing Capital Gains Taxes with Capital Losses:
- Capital losses can offset capital gains.
- Taxpayers can deduct up to $3,000 of capital losses from their income.
- Excess losses can be carried forward for future years (tax-loss harvesting).
- Understanding the distinction between long- and short-term losses is crucial.
6. Additional Information:
- Public.com offers a Capital Gains Tax Calculator to estimate tax liability.
- Emphasizes the importance of understanding tax implications for strategic investment decisions.
This comprehensive overview should provide a solid understanding of capital gains taxes and help individuals navigate the complexities of taxation while making informed investment decisions.
