Disclaimer: I am not a CPA. Please consult with your accountant or your designated tax personbefore making financial decisions.
Have you invested or are you interested in investing in stocks and/or cryptocurrencies?
Here’s something that not many talk about: paying taxes on your capital gains.
The truth is that based on your income AND how long you hold your stocks for, you may be required to pay taxes on your capital gains (your profits).
Let’s break this down for you:
Long-Term vs. Short-Term Investment
An investment is considered long-term when you hold it for over a year.
An investment is considered short-term when you hold it for less than a year.
Why This Matters
This matters because those who hold their investments for less than a year are subject to paying more in taxes. This is why day trading is not the smartest thing you can do with your money, but more on that on a different post.
This is the oldest trick in the book and why “the rich stay rich.” Simply buy and hold for over a year.
How Much Taxes You Pay Based on Your Income & Filing Status
According to the IRS, here’s how much of your capital gains you should set aside for taxes based on your income and filing status:
Short-Term Capital Gains Tax Rates
Long-Term Capital Gains Tax Rates
As you can see in the charts above, a single individual who holds stocks for the long-term and makes less than $40,000 per year is subject to $0 in capital gains tax.
However, if you are a single individual and held your stock for less than a year, and you make between $40,123 to $85,525, you will be subject to 22% capital gains tax.
Don’t get scared! If you have capital losses (you lost money with some investments) then you can get a tax deduction, saving you money on taxes.
Moral of the story: invest for the long-term.
Are Cryptocurrencies Taxed?
If you use an app like Robinhood where you cannot withdraw your crypto (move to another wallet) then you can only cash out.
When you cash out (send your capital gains to your checking account) then you will be subject to tax.
This is one of the reasons why you don’t want to purchase crypto using apps like Robinhood which do not let you withdraw your actual coins.
If you want to learn more about Robinhood alternatives, especially if you want to invest in Dogecoin, watch the video below!
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JOIN EXODUS: https://www.exodus.io/
JOIN BINANCE: https://www.binance.us/en/home
JOIN ANCHOR USD: Earn interest on your money and crypto: https://www.anchorusd.com/