Is there a tax bracket system with stocks just like income or is it more complicated than that?

Question

Please don't answer if you don't know for sure.

For example if you made $5000 in one year from selling shares from a company how much taxes would you have to pay on that?

Answer 1

It is a little more complicated.

Income from buying and selling stock will be taxed based on the length of time you held the stock.

If you have held the asset for more than 1 year, it is considered capital gain/losses. The profit is generally taxed at 15%.
If less than 1 year, it is taxed at your tax bracket.

Divident income however is more complicated. It varies on the type of stock, when and how long you held the stock. If you want to know more about it, try looking up IRS Publication 17, Chapter 8 "Dividents and Other Corporate Distributions" http://www.irs.gov/publications/p17/ch08.html.

Answer 2

When a security (stock, mutual fund, bonds, etc.) is sold, the gain is considered long-term capital gain (LTCG) if it was held more than one year or short-term capital gain (STCG) if it was held for one year or less. Of course, you could also have a long-term capital loss (LTCL) or a short-term capital loss (STCL) if you sell for less than your investment or "basis".

At the end of the year, you add all your gains and losses together. You will end up with one of the following situations:

1) If you have a net loss, you write it off against your other income up to $3000. So, if you made $50,000 on your W-2 and had a $2000 LTCG and a $7000 STCL, your total capital loss is $5,000 (+$2000-$7000). Of that, $3,000 will go against your regular income of $50,000 to give you an new income of $47,000. The remaining $2,000 loss will carry into next year and be combined with your next year's capital gains/losses.

2) If you have a net gain composing of STCG and LTCL, the net gain (being short-term) is just like ordinary income and is taxed at your marginal tax rate. It is taxed just as if it were additional income in box 1 of your W-2.

3) If you have a net gain composing of LTCG and STCL, the net gain (being long-term) is taxed at 15% if your marginal tax rate is in the 25% bracket or higher, or it is taxed at 5% if your marginal tax rate is below the 25% bracket.

4) If you have both a LTCG and STCG, the STCG portion is taxed at your marginal rate (just like #2) and your LTCG portion is taxed at 15% or 5% (just like #3).

This is not a guess....I know for sure. Hope this helps :)

Answer 3

Stock dividends are tax in several different ways. You might wish to learn more about those treatment in chapter 8 of IRS Publication 17. I have provided a link directly to that publication.

http://www.irs.gov/pub/irs-pdf/p17.pdf