Investing in the stock market can help build wealth over time, but investment earnings can also come with tax consequences. How much you may owe depends on several factors, including how you earned the income, how long you held an investment before selling it, and your taxable income. Understanding the difference between short- and long-term capital gains can help you anticipate the potential tax impact when you decide to sell an investment.
How do I earn money from my stocks?
You can earn money from the stock market in two ways: You can sell your stocks for more than what you originally paid for them or you might receive dividends, which are regular payments that companies make to their shareholders. Either way, at tax time, when you file your federal taxes, you’ll need to pay short- or long-term capital gains taxes on these earnings. You’ll pay short-term capital gains taxes when you earn income from stocks that you’ve owned for less than a year. These gains are taxed as ordinary income. However, if you earn a profit from stocks that you’ve owned for more than a year, you’ll pay long-term capital gains tax. This income is taxed at a special capital gains tax rate of 0%, 15% or 20%.
How much will I pay in short-term capital gains taxes?
If you sell your stock for a profit after holding it for a year or less, your gains will be taxed as ordinary income, using the same tax rates and tax brackets that are used on your wages. These tax rates are also adjusted annually to account for inflation. For 2026, your short-term capital gains tax rate will range from 10% to 37%, depending on your income. You’ll qualify for the lowest short-term capital gains tax rate of 10% if you are single and earn up to $12,400 a year. Married couples filing jointly who earn up to a combined $24,800 a year also will qualify for the 10% rate.
For example, if you are single and earn between $105,701 and $201,775 a year, your short-term capital gains tax rate will be 24%. Married couples filing jointly will qualify for the same 24% rate if their combined annual income ranges from $211,401 to $403,550.
How much will I pay in long-term capital gains taxes?
The rate at which your stock earnings are taxed for long-term capital gains depends on your income. The dollar amounts at which different rates kick in change on an annual basis depending on inflation. For 2026, your long-term capital gains tax rate will be 0% if you are single and earn up to $49,450 a year. Couples who are married and filing their income taxes jointly will qualify for the 0% rate if their combined income is as much as $98,900 a year.
If you are single and earn between $49,451 and $545,000 a year, your long-term capital gains tax rate will be 15%. Couples who are married and filing jointly will get the same tax rate if their combined annual income ranges from $98,901 to $613,700. You’ll pay a long-term capital gains tax rate of 20% if you are single and earn more than $545,500 in income annually. For couples who are married and filing jointly, an annual income of more than $613,700 triggers the 20% long-term capital gains tax rate.
Final thoughts
Taxes are an important consideration when making investment decisions, particularly when deciding when to sell an appreciated stock. Because capital gains rates depend on factors such as your holding period, taxable income, and filing status, understanding the potential tax consequences ahead of time can help you plan more effectively. If you have questions about how investment income or capital gains may affect your tax situation, we are here to help. Please contact us using the form on this page.
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