Question of the Day

There will be a financial literacy question posted every day of the month. Answer it and share what you "know." It could be the money question.

The question of the day:

How are capital gains taxed at the federal level? Why should you care?

Posted 01.30.15 | Answer the question | 4 Comments

Answers

  1. Comment by Brennan Haag on 01.30.15 at 7:02 am

    If you are in the 10 or 15 percent tax bracket, capitol gains are not taxed at all. If you are in a higher tax bracket, capital gains are taxed at a much lower rate than most other income. You should care because you can make untaxable money by doing simply having your money invested in index funds.

  2. Comment by Garrett Haag on 01.30.15 at 8:18 am

    Capital gains are taxed at a different rate then earned income. For qualified dividends and long-term capital gains, people in the 25% or higher tax bracket currently pay a 15% tax, however those in lower brackets are exempt from any tax. So you should try to make as much as you can off of capital gains due to this lower tax rate or no tax for some people.

  3. Comment by Mike Dunlop on 01.30.15 at 8:38 am

    Capital gains are any gains that you make from the sale of an asset that is held for investment. The rate of tax that you pay on those gains depends on the length of time you hold the asset. Any assets held longer than a year before being sold qualifies as long term and is taxed at a much lower level. Any assets held for less than a year is taxed at ordinary income rates, which could be as high as 39%. There are three levels of tax for long term capital gains: 0% for low income earners, 15% for most people, and 20% for high income earners. We should care because if we want to sell an asset that we have held close to a year, a few days could make the difference between paying 20% or paying 39% in taxes. We always want to minimize the taxes that we are obligated to pay.

  4. Comment by Mike Finley on 01.30.15 at 8:28 pm

    Well said, gentlemen. I have nothing to add.