Do short term capital gains count as income?
Question:
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:
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
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.
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%.
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