With the holidays just around the corner and the end of 2022 approaching fast, you might be wondering: Should I sell my stocks before the end of the year?
Maybe you’re looking for a little extra cash to help cover all the money you spent on holiday gifts, or perhaps you simply want to give yourself the gift of a potential tax deduction next year. Whatever the reason, you’re wondering how selling investments might affect your taxes.
Don’t panic! We’ve compiled some useful information to help you decide what course of action to take.
Paying taxes on your capital gains
If you sell your investments for more than they’re worth because they’ve appreciated in the time you’ve owned them, you’ll report what’s called a capital gain. You can make capital gains from investments like stocks, bonds, and real estate.
The amount of tax you are going to pay for capital gains depends upon whether you had a short-term or long-term capital gain. Short-term gains are for less than one year, and long-term gains are for investments you held onto for more than one year.
What are the tax rates on short-term and long-term capital gains?
There is a graduated tax rate on long-term gains. It’s going to be 0 percent, 15 percent, or 20 percent, though most people pay 15 percent or less. Your tax rate will depend on your income. For instance, in 2022, it’ll be 0 percent if you make up to $41,675 per year, or up to $83,350 per year if you are married and filing jointly. If your income is between $41,676 – $459,750 or $83,351 – $517,200 for married filing jointly, the rate is 15 percent. If your income is over $459,750 or over $517,200 for married filing jointly, it’s 20 percent.
Short-term capital gains are taxed like ordinary income, which can be up to 37 percent. It all depends on what tax bracket you’re in. Note that the flat capital gains tax for investments like antiques, art, coins, stamp collections, and various other collectibles is 28 percent, no matter what your income may be.
When deciding if you want to sell your investments, it’s important to look at how long you’ve held onto them. For instance, you could lose out on a lot more money if you’re subject to the short-term capital gains tax and may want to hold off on selling stocks until next year.
How to avoid taxes on your investments
You can avoid paying taxes when you sell your investments if you sell your shares at a loss. If your total capital losses ended up being more than your total capital gains for the year, then you can deduct a maximum of $3,000 of those losses against your total yearly income.
Reporting capital gains and losses on your taxes
To report your capital gains and losses, you’ll need to fill out Form 1040, Schedule D, when you file your taxes. Make sure you keep documentation of the sales of your investments when they go through for tax purposes.
The bottom line
It’s up to you to decide whether it’s worth it to sell your investments before the end of the year so you can file the losses or gains on your 2022 tax return. To make the best decision, look at the amount of your capital gains, the tax rates you’ll potentially pay, and the amount of time you held onto your investments before making the leap.