Tax, tax, and tax again! It almost never ends, and literally, it doesn't. Investments like stocks are subject to tax. Sometimes, investors hold back from certain investments after evaluating the tax implications involved. Stock investments are taxed in varying percentages based on the status of the investor. Below is a breakdown of taxes on stock, how to pay, and other intricacies involved.

Tax on stocks is categorized under capital gains. Selling investments like stocks and bonds amongst others is usually called a capital gain. Capital gains are taxed as income, so whatever you earn in the sales of your investment is subject to tax. 

Capital gains are taxed based on category. A long-term capital gain is taxed differently from a short-term capital gain.

Long-Term Capital Gain

The long-term capital gain is preferred by investors since lesser tax is charged. A long-term capital gain is a profit earned from selling an investment after keeping it for a year or more. At times, some investors with low earnings may be exempted from tax while high earners get subjected to about 20% which is considered reasonable compared to the usual higher rates charged on normal income.

Long-Term Capital Gains Tax Rates by Income

For Singles For Married Couples
Income Tax Rate Income Tax Rate
Up to $9525 0% Up to $19,050 0%
$9526 - $38,600 0% $19,051 - $77,200 0%
$38,601 - $38,700 15% $77,201 - $77,400 15%
$38,701 - $82,500 15% $77,401 - $165,000 15%
$82,501 - $157,500 15% $165,001 - $315,000 15%
$157,501 - $200,000 15% $315,001 - $400,000 15%
$200,001 - $425,800 15% $400,001 - $479,000 15%
$425,801 - $500,000 20% $479,001 - $600,000 20%
$500,000 + 20% $600,000 + 20%

Short-Term Capital Gain

Short-term capital gains are profits from investments like stocks sold in less than a year. The short-term capital gain is taxed as usual income; the same way income from work is taxed. 

The difference between the two approaches is why stock investors prefer to keep their investments for long to avoid normal income tax but rather enjoy reduced charges on capital gains. 

Short-Term Capital Gains Tax Rates by Income

For Singles For Married Couples
Income Tax Rate Income Tax Rate
Up to $9525 10% Up to $19,050 10%
$9526 - $38,600 12% $19,051 - $77,200 12%
$38,601 - $38,700 12% $77,201 - $77,400 12%
$38,701 - $82,500 22% $77,401 - $165,000 22%
$82,501 - $157,500 24% $165,001 - $315,000 24%
$157,501 - $200,000 32% $315,001 - $400,000 32%
$200,001 - $425,800 35% $400,001 - $479,000 35%
$425,801 - $500,000 35% $479,001 - $600,000 35%
$500,000 + 37% $600,000 + 37%

How to Pay Stock Taxes

Payment of taxes on stocks is plain and simple. Most times, the investor need not keep tabs on the tax record. Usually, tax law obligates investment companies to take note of each investor's capital gains and therefore get duly charged. Most of these firms will require each investor to fill the 1099 tax forms in a bid to document the annual incomes of all investors.

Once this is filled, you can be assured of proper tax documentation and charges without having to learn the process. However, it's imperative to work with an account to carefully have the tax report interpreted as the investment company will issue the report to each investor. With the help of a professional, you can successfully pay your tax without any complications. 

Can I avoid taxes on stock?

To benefit from the stock market, it's impossible to avoid paying taxes on capital gains. The system makes it impossible to legally evade taxes on stock, regardless, minimizing the tax charge is feasible.

Minimizing capital gain/ stock taxes using the following:

Retirement Accounts

Investment in a taxed retirement account is exempted from capital gain charges. This means no matter how huge your capital gains are, you will not get taxed. However, keep in mind that you'll get taxed for every penny withdrawn from the retirement account. 

Using a Roth Account

Since a Roth IRA account is taxed for every money contributed in them, the user of such an account is exempted from withdrawal taxes. In an investment, as long as about 60% of the funds in an IRA or 401k account is contributed for at least five years, capital gain linked to it is not charged; both as an earning and upon withdrawals. 

Tax-loss Harvesting

Tax-loss harvesting is another avenue of offsetting or minimizing stock taxes. When the going gets tough and an investor who bought low to sell high losses due to a decline, the loss can be a consolation. The fact is, losing is part of the process of investment -- it's inevitable -- as some profit, some lose. If you run at a loss, tax harvesting can be beneficial for you, allowing you to deduct capital losses from capital gains. Therefore, if you made a certain percentage loss on a stock investment, it minimizes your taxable income. 

Overall, consulting a tax expert will make a world of difference in your investment process. A professional provides information on tax filing, how to minimize taxed gains, and strategies of stock investment that will be helpful for you. 

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