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:
| Tax Filing Status | Income range at
0% Rate |
Income range at
15% Rate |
Income range at
20% Rate |
| Single | 0 – $40,400 | $40,401 to $445,850 | > $445,850 |
| Married Filing Jointly | 0 – $80,800 | $80,801 to $501,600 | > $501,600 |
| Married Filing Separately | 0 – $40,400 | $40,401 to $250,800 | > $250,800 |
| Head of Household | 0 – $54,100 | $54,101 to $473,750 | > $473,750 |
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!