Capital Gains Tax Explained📈 How Stocks are Taxed!

Capital Gains Tax Explained📈 How Stocks are Taxed!
How Do Capital Gains Work? 📈 (Capital Gain Tax Rules Explained) How Stocks and Dividends Are Taxed!

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Free handout and links to tax forms:
https://www.dropbox.com/s/hlulphh605k7mwc/capital%20gain%20tax%20rules%20for%20audiance.docx?dl=0

Schedule D instructions: https://www.irs.gov/pub/irs-pdf/i1040sd.pdf

Form 8949 Instructions: https://www.irs.gov/pub/irs-pdf/i8949.pdf

Form Schedule B Instructions: https://www.irs.gov/pub/irs-pdf/i8949.pdf

IRS publication 17: https://www.irs.gov/pub/irs-prior/p17--2017.pdf

Video time stamps so you can skip ahead like a boss!

• How Capital Gain Tax Rates Save You Big On Taxes - 1:00
• What types of income are subject to capital gain rates? - 1:53
• Capital gain rate treatment for qualified dividends - 4:00
• Capital gain long term/Short-term holding period rules - 6:08
• When do I have to pay taxes on my stocks or dividends? - 7:24
• Recognized gain/losses vs unrecognized gains/losses - 9:50
• How are capital gains calculated? 11:00
• What about stock losses and taxes? 12:16
• Capital gain ordering rules 14:00
• Stock wash sale loss rules: 15:40
• Worthless stock and securities: 16:53
• Where do I report capital gains for taxes?(Form SCH D) (Form 8949) (Form Schedule B) 17:06
• What tax statement is used for Capital gains and dividends? 19:25
• What is net investment income taxes? 20:28
• Capital gains and state income taxes 21:23
• Tax advantages of being a long-term investor 22:31

How to make estimated tax payments video: https://youtu.be/rjTMjAvRyhM

Only two types of income qualify for capital gain rate treatment
- Qualified dividends
- Long-term capital gains from the sale of stocks or other investment property

Things to know about Qualified Dividends

1A. Holding Period - Common stock investors must hold the shares for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date. For preferred stock, the holding period is more than 90 days during a 181-day period that starts 90 days before the ex-dividend date.

2A. Types of Dividends – Although qualified dividend treatment is common among many stocks not all dividends can get qualified dividend treatment. REITS (Real Estate Investment Trusts) cannot receive qualified dividend treatment under the internal revenue Code.

Things to know about Long-Term Capital Gains

1A. Holding Period (Long-Term) – To get long-term capital gain rate treatment on your sale of publicly traded stock you have to hold the stock for more than a year. Notice I did not say one year exactly. I said more than one year so a year and 1 day would suffice.

Holding Period (Short-term) – If you hold the stock for one year or less you receive short-term treatment which means it is taxed at ordinary income rates and what does ordinary income rate mean? It means you are paying taxes at the highest rate. This specific tax rule is a major drawback for an investor who likes to actively trade stocks. They are always paying taxes at the highest rates.

When do I have to pay taxes on my stocks?

Dividends - Dividends are taxable in the year received.

Recognized Gain/(Loss) on sale of stocks - If you are new to investing it is important to know that taxes will only come into play once you sell the investment. Once you sell the investment you will recognize either a gain or loss.

Unrecognized Gain/ (Loss) - If you are just holding an investment and have not sold it you will have a unrecognized gain/ (loss)

For example I currently have an unrecognized gain on my Amazon stock of $7,000. If I sold it I would recognize a long-term capital gain of $7,000 since I have held the stock for more than a year and pay capital gain rate taxes on $7,000.

How are capital gains calculated?

To calculate gain on sale

Fair market value of stock when sold - original purchase price (Cost Basis)

Example: I sell Amazon stock for $2,000. My cost basis at the time of purchase was $800; therefore I recognize a capital gain of $1,200.

What happens if I lose money on the sale of stocks?

When you go to sale your securities if you lose money it’s not all bad news. Any loss recognized can offset capital gains.
Example: If you recognize capital gains of $2,000 and recognize a loss of $500 you reduce your overall capital gain and pay tax only on $1,500.

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