Short-Term Capital Gains vs. Long-Term Capital Gains

Have you ever wondered why gains are separated between long-term and short-term when you receive your 1099 at tax time? There is a very good reason for that, and one you might want to consider more carefully when investing.

Short-term capital gains are derived if you hold an investment one year or less before disposing of it. Short-term gains are taxed as “ordinary income,” the same rate you pay on wages or business profits. 

Long-term capital gains, on the other hand, are generally taxed no higher than 20% and could be taxed at 0%, depending on your income.  See the table below:

Exceptions to the long-term capital gains tax rate are collectibles such as art, jewelry, and precious metals. These are taxed at 28% regardless of your income. Bear in mind, though, that tax rates on ordinary income range from 10% to 37%. 

Be sure to keep this information in mind when managing your investments. It could make a BIG difference come tax time! 

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I hope one or more of these tips help you put more of your hard-earned money back into your pocket and keep it out of the tax man's!