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There are two main taxes on US stock investment: (1) capital income tax; (2) dividend income tax.

(1) Federal capital income tax

     Capital gains are the difference between what you pay for your investment and your income (when you sell your investment). If you make a profit on your investment, you have a capital gain; if you make a loss on your investment, you have a capital loss.

Investments include mutual funds, bonds, stocks, options, precious metals, real estate and collectibles. If you sell an investment more than you pay, you have a capital gain. If you sell an investment for less than the investment paid, you have a capital loss. Your capital gains and losses must be reported to the Federal Revenue Service. Capital income tax is a tax on the net profit and loss of stock trading.

Net stock investment gains and losses = selling value-buying value

    The so-called purchase value usually refers to the total price you paid for the stock. However, if you are an inherited stock, the purchase value is the total price of the stock on the day the owner died. If the net stock gains and losses are negative, in other words, your stock investment is a loss, and you have a net loss of capital, you can use the loss to offset the capital gains.

The capital income tax rate for stock investment is set according to the length of the stock holding period. According to the US tax law, capital income from stock market investment is divided into two types: long-term capital income and short-term capital income.

  1. Short-term capital income, that is, capital income with a holding period of no more than one year, is calculated at the ordinary income tax rate, and the maximum is no more than 35%. In other words, short-term capital income is regarded as ordinary income and subject to personal income tax.

  2. Long-term capital income, that is, capital income with a holding period of more than one year. Taxpayers at the two ordinary income tax levels of 10% and 15% pay capital income tax at 5%; taxpayers at 25%, 28%, 33% And 35% of the four ordinary income tax levels are paid at 15% capital income tax.


(2) Federal dividend tax

Regarding the dividend distribution of listed companies, shareholders were originally required to pay federal personal income tax on dividend income as ordinary income.


(3) Taxation plan and false rules

If you firmly believe that your capital gains meet the long-term standard, your next possibility is to see if there are losses in stocks that may be sold. If the capital is lost in the same year, it can be offset in the income.

If there is a good reason to expect the stock price to rise, don't sell it. At the end of the year, the stock market sometimes falls, so investors can throw away those stocks that have lost money to offset the income of the year.

But the Federal Revenue Service has a rule in order to prevent investors from selling stocks at a loss-only to buy back the stocks as a reversal, and the real motive is to offset the gains. This is called the "false rule" and it states that you cannot sell the stock, buy it back within 30 days, and declare a capital loss. If you sell a stock and buy it back within 30 days, the Federal Revenue Service will not accept this capital loss and you will lose the opportunity to offset it.


(4) State capital income tax

In addition to the federal capital income tax rate, capital income is also subject to state income tax. Most states have not established a separate capital income tax. However, most states treat capital gains as ordinary income and require individual income tax to be paid at the state income tax rate.

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