Differences between short-term gain versus long-term gain?

Question

What is the tax differences between a short-term and long-term gain? Are dividends considered capital gains or ordinary income? When you sell a stock and there is a gain, do they tax you at the spot, or at the end of the year when you file 1040? How does that work? Lastly, what type of income and tax % are on those online saving? My cousin told me that the online saving (interests) were consider short-term gain, are they or they are consider ordinary income? Thanks!!!

Answer 1

Any security you sell that you have held for over 1 year is long term and is taxed at 15% (5% if you are in the lower tax brackets).  Generally, taxes are not withheld on these transactions.  You "pay" the tax when you file your return.  If the gain is large, you should probably make an estimated payment.

Savings accounts (online or otherwise) are taxed as ordinary income.  While they are not short term gains, they are taxed the same as short term capital gains.

Dividends are either "Ordinary" or "Qualified".  Ordinary dividends are taxed as ordinary income and qualified dividends are taxed the same as long term capital gains.

Answer 2

Q: What is the tax differences between a short-term and long-term gain?

A: A short-term gain is gain on an investment that you have held for one year or less.  A long-term gain is gain on an investment you have held for more than one year.   Gains from inherited assets are always considered long-term.  

Q: Are dividends considered capital gains or ordinary income?

A: Dividends are their own separate income classification.  I most cases, dividends issued for stock that you have held for more than 60 days is taxed at 5% or 15%.  Most mutual fund dividends are taxed the same way.  Other dividends are taxed the same as ordinary income.

Q: When you sell a stock and there is a gain, do they tax you at the spot, or at the end of the year when you file 1040?

A: You can choose to have taxes withheld from the sale of your stock, and you may want to do this if the gain is large enough to generate tax.  Otherwise, you pay tax on your gain when you file your income tax.

Q: Lastly, what type of income and tax % are on those online saving? My cousin told me that the online saving (interests) were consider short-term gain, are they or they are consider ordinary income?

A: If you receive bank interest, from an online bank or not, that income is taxed as ordinary income.

Answer 3

Dividends are taxed as ordinary income.  Interest, from whatever source, is shown as interest and taxed as ordinary income.  Short term gains on sale of stock are taxed as ordinary income.  Long term gains are taxed at 5% or 15% - you pay it when you file, or make estimated payments if the amount will be large.