What's the tax rate for stock trade?

[luvya]

Err.....I currently have $5000 in my account and I think I can spare $1000 into the stock market. It's not a whole lot of money but I just want to get my hand dirty first. So here is my question, what would be considered as long-term and short-term trade? And what's the tax rate for each?

 

[GasX]

$1000 means you buy an index fund and don't look at it for 10 years...

 

[CPA]

How long have you had the stocks? anything under a year is considered short-term.

And the rates are going to be dependant on what your earnings are. Short term are generally taxed as income, long term are taxed at either 5% or 15% rates.

 

[ggnl]

Short term < 1 year
Long term >= 1 year

If you are in the 10 or 15% tax bracket, you pay 5% for long term capital gains.

If you are in the 25% or higher tax bracket, you pay 15% on long term capital gains.

Edit: If I'm not mistaken, I think short term gains are taxed as ordinary income.

 

[amoeba]

There is no point in buying short term with only 1000 dollars.

Even if you get a 10% return in a month ( extremely unlikely) that requires you to sell after the gain for fear of stock dropping, after trading costs and taxes, you have earned a whopping 60 dollars.

Just put it in index fund and leave it alone.

 

[Zombie]

You have to hold the stocks for atleast a year to qualify for lowest tax rate on profit.

 

[DaveSimmons]

1. www.Vanguard.com set up a Roth IRA if you have earned income
2. buy their VFINX fund and leave it alone for 20 years
3. Profit!

 

[Garuda]

How much are dividends taxed at?

 

[luvya]

Ok, if it's to be taxed as ordinary income, then what's the current tax bracket? And let me get this commission thing straighten up, let's say I trade in scottrade and they charge $5 a transaction, is that all the commission I have to pay? Or any other fee I need to look out for?

 

[amoeba]

its 5$ a transaction so really you are paying 10$ for the buy and the sell.

 

[Garuda]

Sharebuilder charges $4 per transaction, with no maintenence costs. That's what I use. I have $2300 invested so far, and I plan to put in another $1000.

 

[luvya]

Err...so nobody could tell me the current tax bracket for income?

 

[DaveSimmons]

Originally posted by: luvya
Err...so nobody could tell me the current tax bracket for income?

"too high"

Your tax bracket depends on your taxable income. Download the 1040 instructions from irs.gov if you didn't keep last year's booklet.

If you're working full time you'll probably pay the 15% on your long-term gains, and 25 - 30% on short term gains.

Short term trading is gambling. So you buy $1,000 of FUD and pay $5 for the trade, sell at $1,100 and pay $5 for the trade, then pay $25 in income tax, you've made $65 with about the same risk level as going to Vegas and putting it all on red.

It's equally (or more) likely you'll buy $1,000 of FUD and sell at $900, losing $110 but not paying any taxes, w00t!

Vanguard. VFINX. Buy and hold.