Education Lesson 17
In this chapter, we will cover what is necessary to properly pay your taxes. For a good website to read about taxes, please check out
Capital Gains Tax
Any profit you enjoy from the scale of a stock held for at least a full year is taxed at the long-term capital gains rate, which is lower than than the rate applied to your other taxable income. It's 15% if you are in a 25% or higher tax bracket and only 5% if you are in a 15% or lower tax bracket.
Profit from stocks held for less than a year are taxed at your ordinary income tax rate.
Ordinary dividends earned on your stocks holdings are taxed at regular income taxes rate, not at capital gain rates. However, ''Qualified dividends'' are taxed at a very advantageous capital gain rate of 0% to a maximum of 15%.
For dividends to be classified as ''qualified'' they must be payed be a U.S corporation or a qualified foreign corporation and the holding period of a stock must be more than 60 days. There are plenty of other exceptions and definitions, so check with your broker or tax advisor to see if the dividends for your stocks holding are ''Qualified''. Dividends on stock held in a qualified retirement plan are not taxable income.
One of the big limitations in stock investing is the amount of losses you are allowed to deduct on your tax return. If you sell stock at a loss you may deduct only $3,000 per year; the reminder of the loss is carried forward to future years. You may apply capital losses against capital gain in the current and future years to net out the overall profit of loss.
Also, heres a video by Zip trader who provides tips and tricks on how to lower your tax liability.