Long Term vs Short Term

These days everything is taxed. Everything from winnings to bonuses, etc. Its hard to keep a hold of what you gain. However, when it comes to investing, there is in fact a way to keep what you gain.

It is important to know the difference between short term and long term gains. One is going to be taxed at a normal rate where as one could save you so much money if not let you keep your whole gain.

Lets talk short-term capital gains.

Short-term cap gains

Unfortunately the one that is going to be taxed at a normal rate is the short-term gains. There is no specific benefit to keeping something short term even with taxes. They do not carry benefit from any special tax rate.

Short-term gains are actually going to be taxed at the same high rate as your income. Did you know income can be taxed anywhere from 10-39.6%depending on what you actually make. The same goes for short-term capital gains.

Now that you know the disadvantages of short term you are probably wondering, what is defined as short term. Well if you have an asset, say its shares, a home, etc and you sell that asset you had for a year or less then it’s considered short term

So what about those Long Term gains?

Long-term cap gains

The rate long-term capital gains are taxed at is at a maximum of 20%. That means you will be keeping 80% of your gain. That’s not it, it is possible that you could not be taxed at all. That means you are keeping your entire gain. It all depends on [].

So what does this mean for you? Well the obvious, hold your assets longer and you can benefit from a reduced tax rate and keep your gains.

For example if you buy shares for a company at $25 each. Five years later you still own shares and it has possibly risen. Over the 5 years you are not required to pay taxes on the increase.