We had some extra money so we decided to "play" the stock market. We invested 00 in stocks and mutual funds and have made about 00 after a few months. The reason we started this was because we didn’t want to put our extra money in a meesly money market account making nothing, and this is for our future/retirement, in addition to our 401k’s. My question though is if I take this money out (our earnings) for say a vacation, will I be penalized in taxes for taking it out? Do people use their earnings in this matter, or is it treated like a 401k and don’t touch it? I’m new to investing in the stock market.
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What do you do with the earnings you've made in the stock market?
Brad 2:02 pm on August 11, 2010
Good question!
When you sell a stock, the gain will be subject to Capital Gains Tax:
You figure the capital gains tax on the difference between your “basis” in the stock and the sales price. This difference is your profit or loss. The basis is usually what you paid for the stock.
There are two types of capital gains:
•Long-term Capital Gains
•Short-term Capital Gains
The tax on a long-term capital gain is currently 15% if you are in the 25% income tax bracket or higher and just 5% if you are in the 15% or lower tax bracket. You must hold the stock at least one full year to qualify for the long-term capital gains rates.
If you hold a stock less than one year before selling it, the IRS classifies the sale as a short-term capital gain and taxes the profit as ordinary income. This means you could pay 25% or much higher of your profit in taxes.
Hope this helps!
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Brad
Doctor Deth 2:02 pm on August 11, 2010
you will owe income tax – no matter what you do with the money.
state and federal for that $1000 in capital gains – so you better put away $250-300 or so, depending on what your tax brackets are
John 2:02 pm on August 11, 2010
Money outside a qualified retirement account is taxed differently. If you had a gain on an investment, you’ll receive and report this gain on your tax return. Any gains inside the 401(K) IRA etc will be deferred until you take it out.