Do short term capital gains count as income?

Question

For instance, if my income this year was $50K (putting me into the 25% bracket when filing single), and my short term capital gains were $50K, would that bump me up to the 28% tax bracket?

Or perhaps I quit my job and only trade stocks, meaning my "income" would only be the interest I make on my bank account, which would put me into the 10% bracket (easily), would that be my capital gains rate, even if I were to make $500K on my short term capital gains.

Many thanks.

Answer 1

Short term cap gains ARE taxable income.

At your regular tax rate.

Long term cap gains (held a year and a day or more) are taxed at the lower Long Term Cap Gain rate. If you are in the 25% bracket, LTCG is 15%. If you are in the 15% bracket, LTCG is 10%

As for your thought about quitting working and earning interest plus capital gains in stock trading....EXAMPLE: You earn 0 wages, $5,000 in interest, and $100K in Short Term Cap Gains. The $105K total puts you into the 25% tax bracket, so your STCG are taxed progressively up to 15%, but your interest income is taxed at the 25% rate. You can't tax the interest FIRST at the lowest rate; it's taxed first at the HIGHEST rate!



The WealthBuilder
Tax Specialist

Answer 2

1

Answer 3

Long term and short term gains are figured and taxed separately. You don't do one first and one second. Or more correctly, it doesn't matter the order you do them in, the result is the same. Short term gains are taxed as ordinary income. Long term gains are taxed at a lower rate, normally 15%. If your marginal rate is already 15% or less, then the rate is 5%. The article you linked to has nothing to do with how you list the gains on your return. It talks about the long term rate dropping to 0% for people in the 15% or lower brackets in 2008. That break disappears in 2010 unless Congress acts to extend it. It has nothing to do with the return you are preparing now.

Answer 4

Short term capital gains are taxed at the same rate as ordinary income (wages and interest). Yes the more short term capital gains on top of ordinary income will head you up in the tax rates. $500k in short term capital gains will be taxed just like $500k of interest or wages.

Answer 5

Yup, it sure would bump you up.

Under your idea of only trading stocks, any gains made there would be "income" along with your interest on your account, so your bracket would depend on your stock gains also, so would not just be 10%.