2022 Capital Gains Rates Better Than Ever |  Personal finance

2022 Capital Gains Rates Better Than Ever | Personal finance

(Charlene Rhinehart, CPA)

Selling stocks at a profit can be a major win for your bank account. But it can also come with a hefty tax bill if you’re not careful. The IRS won’t let you slip away without paying capital gains tax.

Fortunately, patient investors are rewarded in the stock market with special rates. For 2022, these rates are better than ever, thanks to increased thresholds set by the IRS. We’ll explain how you can get your tax bill settled with the new capital gains benefits.

Image source: Getty Images.

Exclusive benefits for investors

When you become an investor, you enter a closed club of individuals who have the power to earn more money while paying less tax. It’s all because of capital gains rates. These rates can be lower than the regular tax rates you pay for a job and can help you keep more of your profits.

Capital gains rates come in two forms: short-term and long-term. When you invest in a taxable brokerage account, you will have to pay one of these taxes, depending on how long you hold your investment.

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Let’s say you’re eager to cash in on a winning investment. You sell the stock six months after buying it. Because you’ve held the stock for a year or less, you’ll be stuck with short-term capital gains rates. These tax rates reflect the rates you pay when you earn money at work. There is nothing exciting about these rates.

Here’s a look at the 2022 short-term capital gains rates for those who break their stocks early:

Rate

Alone

Married Filing Jointly

head of household

ten%

$0 to $10,275

$0 to $20,550

Up to $14,650

12%

$10,276 to $41,775

$20,551 to $83,550

$14,651 to $55,900

22%

$41,776 to $89,075

$83,551 to $178,150

$55,901 to $89,050

24%

$89,076 to $170,050

$178,151 to $340,100

$89,051 to $170,050

32%

$170,051 to $215,950

$340,101 to $431,900

$170,051 to $215,950

35%

$215,941 to $539,900

$431,901 to $647,850

$215,951 to $539,900

37%

Over $539,900

Over $647,850

Over $539,900

Table source: Author. Data source: IRS.

This is the real tax deal

Long-term capital appreciation rates are the real reward for investors. You can significantly reduce your tax bill after holding your investments for more than a year. Long-term investors unlock capital gains rates of 0%, 15%, and 20%. The IRS has widened the income bracket for each tax bracket so you can earn a little more money before your income shifts into the next bracket.

Most people will fall into the 15% tax bracket. For those with lower taxable income this year, you can avoid taxes altogether. There is a 0% tax bracket for single filers with taxable income below $41,676. You can sweeten the pot if you are filing as a married couple. You and your spouse can earn up to $83,350 before having to pay taxes on your long-term earnings.

Let’s say a couple’s total taxable income from employment and capital gains is $83,000. The couple could pay 0% on profits for shares held over a year if they are married and file jointly.

Here are the 2022 and 2021 capital gains rates:

2022 long-term capital gains tax brackets

For single filers with taxable income of…

For married co-filers whose taxable income is…

For heads of families whose taxable income is…

…this is the long-term rate of surplus value

$0 to $41,675

$0 to $83,350

$0 to $55,800

0%

$41,676 to $459,750

$83,351 to $517,200

$55,801 to $488,500

15%

Over $459,750

Over $517,200

Over $488,500

20%

Table source: Author. Data source: IRS.

2021 long-term capital gains tax brackets

For single filers with taxable income of…

For married co-filers whose taxable income is…

For heads of families whose taxable income is…

…this is the long-term rate of surplus value

$0 to $40,400

$0 to $80,800

$0 to $54,100

0%

$40,401 to $445,850

$80,801 to $501,600

$54,101 to $473,750

15%

Over $445,851

Over $501,601

Over $473,751

20%

Table source: Author. Data source: IRS.

Patient investors keep more profits

While seeing profits in your account can be rewarding, it can result in a high tax bill if you’re not careful. If you manage to keep your shares for a year, your tax bill will be much lower. However, if your focus is on investing in high-quality assets that match your goals, selling your stocks – unless you need the funds – is unlikely to be a priority.

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