How does the amount of time that I own a stock share affect how much I'll be taxed upon selling it?

[El_Mero_Mero]

You have to pay taxes when you sell a stock, correct? How does the duration that I hold that share for affect the kind of tax that I will have to pay?

For example, if I buy 1 share of XYZ for $5, and later that same day sell it for $10, how much of my $5 profit will go towards taxes?

What if I buy it for $5, and sell it for $10 1 whole calendar year later? How much of my $5 profit will go towards taxes?

Just trying to figure this out. Thanks.

P.S.- I'm using the RobinHood app, so I'm not paying anything for trades.

 

[Tug life]

You get taxed less for capital gains if you hold it for a year or more.

Depending on your tax bracket the rates are 0% 15% and %20

You will have to pay taxes on net gains on the year. So for example if you made $1,000 on one stock and lost $500 on another you will have to pay taxes on only $500 because that is the net gain. Some people use what's called "tax loss selling" to pay less capital gains taxes.

 

[Tug life]

Edit:Wrong thread

 

[El_Mero_Mero]

Appreciate your reply. I hadn't even factored in that my losses will be taken into account as well. I'm at one of the lowest tax brackets currently in my life, so that's a plus for when I sell these shares that I have to sell. Thanks again.

 

[throboss]

Long-Term vs. Short-Term Capital Gains Rates—Which Is More Favorable?

 

[El_Mero_Mero]

Long-Term vs. Short-Term Capital Gains Rates—Which Is More Favorable?

I just read this and it really helped me understand how if I earn $30,000 next year in salary, but then make $20,000 in Short Terms Gains, then my Income will be $50,000 and that will place me in a higher bracket when it comes to how much I have to pay back in taxes.



One question I did have however, and it is kind of long, but:

Let's imagine a scenario where I am on Robin Hood and go on a streak of successful Penny stock flips, and don't actually lose any money during this streak. All of the following hypothetical moves happen during 1 month:


My initial investment is $500, then I sell that stock and cash out at $700. Then I buy a stock with the $700, and sell it for $1000. Then my $1000 becomes $5000. My $5000 becomes $10,000. And finally, my $10,000 becomes $20,000. Then I withdraw the $20,000 to my checking account and pay off my student loan.


In this scenario. I bought a stock 5 times and sold a stock 5 times. I know that I will have to pay taxes on this during Tax Season 2021. Since I turned $500 into $20,000 and didn't lose any money anywhere else, would I be expected to pay taxes on $15,000? Or would I be expected to pay taxes on earnings each time, meaning: $200+300+4000+5000+10,000= $19,500?

Taxes on $15,000 or $19,5000?

* I'm guessing it's the latter, but I don't want to assume

 

[winb83]

I just read this and it really helped me understand how if I earn $30,000 next year in salary, but then make $20,000 in Short Terms Gains, then my Income will be $50,000 and that will place me in a higher bracket when it comes to how much I have to pay back in taxes.



One question I did have however, and it is kind of long, but:

Let's imagine a scenario where I am on Robin Hood and go on a streak of successful Penny stock flips, and don't actually lose any money during this streak. All of the following hypothetical moves happen during 1 month:


My initial investment is $500, then I sell that stock and cash out at $700. Then I buy a stock with the $700, and sell it for $1000. Then my $1000 becomes $5000. My $5000 becomes $10,000. And finally, my $10,000 becomes $20,000. Then I withdraw the $20,000 to my checking account and pay off my student loan.


In this scenario. I bought a stock 5 times and sold a stock 5 times. I know that I will have to pay taxes on this during Tax Season 2021. Since I turned $500 into $20,000 and didn't lose any money anywhere else, would I be expected to pay taxes on $15,000? Or would I be expected to pay taxes on earnings each time, meaning: $200+300+4000+5000+10,000= $19,500?

Taxes on $15,000 or $19,5000?

* I'm guessing it's the latter, but I don't want to assume

You get taxed on your gains. If you pay $500 and sell for $700 you get taxed on the $200. If you buy for $700 and sell for $1000 you get taxed on the $300.

Since you bought and sold all in the initial year of investment you'll likely get a 15% tax rate on that.

 

[El_Mero_Mero]

Thanks for the clarification.

 

[humminbird]

appreciate this. I did a lot of trading this year. this will come in handy.