What is capitals gains?
Capital Gains is a tax you have to pay on profits you make in both the Stock Market and on Crypto currencies. You have to declare your capital gains as part of your yearly tax reporting. You only pay capital gains on the profit you make if you make a loss there is no gains to pay.
In addition to the profit of selling shares / crypto you also have to pay capital gains on any dividends you get.
Types of Capital Gains
There are 2 types of capital gains
Short Term and Long Term
Short Term – These are stocks / crypto that you have brought and sold within a 12 month period? It doesn’t matter if you held the shares for 5 hours or 300 days you pay the same Short term capital gains rate.
Long Term – These are anything you held for more than 12 months and then sold for a profit. The long term capital gains rate is much less.
How much will I have to pay?
This varies it depends on the amount you earn and also which state you live in.
Some states do not have Capital Gains others do.
As a rough guide I would look to withhold between 20-30% for capital gains tax. Its really important to remember that Apps / Platforms / exchanges do not withhold this money so its up to you to remember not to spend this money.
How to be prepared
Whenever I sell any stocks / crypto and make a profit I make sure I move 30% of the profits to a new bucket I created in Betterment to be prepared come tax time.