How Capital Gains Can Push You into a Higher Tax Bracket
Understanding How Capital Gains Work
If you've invested in stocks, bonds, or other assets, you may have to pay taxes on the profits you make when you sell them. These profits are known as capital gains, and they can be taxed at two different rates: long-term capital gains and short-term capital gains.
Long-term capital gains rates
Long-term capital gains are taxed at a lower rate than short-term capital gains. The long-term capital gains rate depends on your taxable income, and it can range from 0% to 20%. For example, if you are in the 12% tax bracket, you will pay 0% in long-term capital gains tax. If you are in the 25% tax bracket, you will pay 15% in long-term capital gains tax.
Short-term capital gains rates
Short-term capital gains are taxed at your ordinary income tax rate. This means that if you are in the 12% tax bracket, you will pay 12% in short-term capital gains tax. If you are in the 25% tax bracket, you will pay 25% in short-term capital gains tax.
Biden's proposal to double capital gains tax rate
President Biden has proposed doubling the capital gains tax rate for high-income earners. This proposed increase would apply to investors who make at least $1 million in capital gains in a year. The proposed rate increase would be from 20% to 39.6%.
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