Author Topic: Capital Gains-How does it work?  (Read 2455 times)

astvilla

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Capital Gains-How does it work?
« on: February 09, 2015, 11:53:06 PM »
Very newbie question but how does it work?

I hear 15% a lot but that's only if you hold it for more than a year? Let me try to outline a scenario.

Company A bought and sold stock, made $1000 in less than one year. Taxed at what rate? Does it make a difference in what account you are buying/selling in? Like taxable, 401k, rollover IRA, Roth IRA? Which is the most tax efficient and what are the rates?

Company A bought and sold stock, made $1000 in more than one year, meaning held at least one year. What is tax rate, 15% What rate would it be based on what account? Does it make a difference based on how much withdraw and is it taxed at a higher rate if your income from stock gains is added to a pension or social security?

Correct me if I have anything wrong, this isn't me doing this but just wondering how it works.

MDM

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Re: Capital Gains-How does it work?
« Reply #1 on: February 10, 2015, 01:42:37 AM »
Very newbie question but how does it work?

I hear 15% a lot but that's only if you hold it for more than a year? Let me try to outline a scenario.

Company A bought and sold stock, made $1000 in less than one year. Taxed at what rate? Does it make a difference in what account you are buying/selling in? Like taxable, 401k, rollover IRA, Roth IRA? Which is the most tax efficient and what are the rates?
Assuming you mean that you bought and sold stock in company A...yes, it makes a difference.  You will be taxed at whatever rate your overall income puts you in if you held the stock in a taxable account.  In a tax-deferred account you pay no taxes now.  Whenever you withdraw from a tax-deferred account you pay taxes on the withdrawal at whatever rate your overall income dictates.  In a tax-free account you pay no taxes.

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Company A bought and sold stock, made $1000 in more than one year, meaning held at least one year. What is tax rate, 15% What rate would it be based on what account? Does it make a difference based on how much withdraw and is it taxed at a higher rate if your income from stock gains is added to a pension or social security?

Correct me if I have anything wrong, this isn't me doing this but just wondering how it works.
Assuming you mean that you bought and sold stock in company A...yes, it makes a difference.  You will be taxed at whatever long term capital gains rate your overall income puts you in (currently either 0%, 15%, or 20%) if you held the stock in a taxable account.  In a tax-deferred account you pay no taxes now.  Whenever you withdraw from a tax-deferred account you pay taxes on the withdrawal at whatever rate your overall income dictates.  In a tax-free account you pay no taxes.

Bbqmustache

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Re: Capital Gains-How does it work?
« Reply #2 on: February 10, 2015, 04:23:30 AM »
As soon as you are able, go to your nearest public library and talk to a librarian about some good beginning investing books.  Get a few, read and learn, read and learn, read and learn.

Monkey Uncle

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Re: Capital Gains-How does it work?
« Reply #3 on: February 10, 2015, 04:33:20 AM »
I suggest going straight to the authoritative source.  Yes, it's dry reading, but necessary if you want to understand how all this works.

http://www.irs.gov/taxtopics/tc409.html

http://www.irs.gov/uac/Ten-Important-Facts-About-Capital-Gains-and-Losses

http://www.irs.gov/pub/irs-pdf/p590.pdf

skyrefuge

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Re: Capital Gains-How does it work?
« Reply #4 on: February 10, 2015, 09:54:17 AM »
As soon as you are able, go to your nearest public library and talk to a librarian about some good beginning investing books.  Get a few, read and learn, read and learn, read and learn.

Or better, just sit at your computer and read MDM's response. There is essentially zero chance that a dead-tree book from the library would have up-to-date information about tax rates and tax brackets that are necessary to answer the OP's question, so that would be a waste of time.

Sure, it's probably a good idea to read a general book about investing, but for this particular question, Google or the MMM forums are a far better resource.