Episode 113: 5 Things to Know About Capital Gains

Today’s Prep:

If you’ve ever invested, you’re at least familiar with capital gains, but do you understand how much they impact your future? Today we’ll tell you five things that you need to know about capital gains and how to account for them when investing.

(Click the featured times below to jump forward in the episode)

Equipping Points:

Do you know or understand the benefit behind capital gains in our tax code? Is it really a benefit? Uncle Sam is going to get some money, the question, how much? On today’s podcast, David talks through five important things to understand about capital gains and how that knowledge can help you make the right financial decisions.

What are short-term capital gains and how do they compare to long-term capital gains? And why should you care? Long-term capital gains are a lot better from a tax standpoint. How does that look with your federal taxes, depending on what tax bracket you’re in? How might that change under Biden’s proposed tax plans? Right now, everyone gets a benefit from taking a long-term capital gain vs. a short-term capital gain.

If you have money in a Roth IRA or traditional IRA, you aren’t taxed on long-term capital gains or short-term capital gain. A traditional IRA taxes it like income when you withdraw the funds. Capital gains is only related to a traditional brokerage account, not a Roth or traditional IRA. 

If you sell something at a loss and something at a gain, you get to subtract the difference on long-term capital gains. You’re only taxed on the net. David shares where you can find this on your tax forms and what an example of this looks like. What rules do you need to know on these tax strategies?

Are short-term or long-term capital gains applied to annuities? How does it get taxed when you inherit an annuity? What benefits don’t exist with annuities? What benefits can you pass down to your family?

Listen to the entire episode or click on the timestamps below to learn more about capital gains.

[1:43] – What’s the difference between a short-term capital gain and a long-term capital gain?

[5:55] – Which one is better?

[6:22] – Does it change if you’re in a Roth IRA or traditional IRA?

[10:00] – What happens if you sell something at a loss?

[13:29] – What do you need to know about annuities? 

Today’s Takeaway:

The taxable difference between a long-term and short-term capital gain can be big, and so it’s absolutely worth knowing where you are with each of your holdings before you sell.

– David Dickens

Additional Resources:

PODCAST: Types of Financial Risk to Watch Out For
PODCAST: The Story Behind GameStop Stock
PODCAST: 5 Important Retirement Statistics

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The host: David Dickens

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