Disclaimer: I am not a tax advisor. Consult with a professional tax advisor before making any decisions.
The information below does not apply to tax-deferred accounts such as 401k’s and IRA’s.
Taxes are owed on your net gain (profit) each year.
In general, gains and losses fall into one of the following tax treatment categories:
| Class | Federal Tax Rate | State Tax Rate (MD) | Local Tax Rate (Mont. Cnty) |
|---|---|---|---|
Long Term Capital Gains |
0%, 15%, or 20% |
2% - 5.75% |
3.2% |
Ordinary Income |
0% - 37% |
2% - 5.75% |
3.2% |
Collectibles |
0% - 28% |
2% - 5.75% |
3.2% |
-
These rates do not include the 3.8% Net Investment Income Tax that is applied to investment income if your overall modified adjusted gross income (MAGI) is above certain income thresholds. This is often referred to as the "Medicare surtax" and is layered on top of the other income tax rate you owe on that income.
Tax Treatment Cheat Sheet
| Gain/Loss from | Tax Treatment | Effective Tax Rate (Mont. County) |
|---|---|---|
Sale of Stock |
Held for more than a year: Long Term Capital Gains |
5.2% - 28.95% |
Held for one year or less: Ordinary Income |
5.2% - 45.95% |
|
Qualified Dividend |
Held for 61 days or more: Long Term Capital Gains |
5.2% - 28.95% |
Held for 60 days or less: Ordinary Income |
5.2% - 45.95% |
|
Sale of Bond Fund |
Held for more than a year: Long Term Capital Gains |
5.2% - 28.95% |
Held for one year or less: Ordinary Income |
5.2% - 45.95% |
|
Income from U.S Treasury Bond Fund |
Ordinary Income (Federal) No Tax (State/Local) |
0 - 37% |
Income from Municipal Bond Fund |
No Tax (Federal) Ordinary Income (State/Local) |
5.2% - 8.95% |
Income from MD Tax-Exempt Bonds |
No Tax |
0% |
Income from Corporate Bond Fund |
Ordinary Income |
5.2% - 45.95% |
Interest from Savings Account |
Ordinary Income |
5.2% - 45.95% |
Sale of Physically-Backed Gold/Silver ETF |
Held for more than a year: Collectibles |
5.2% - 36.95% |
Held for one year or less: Ordinary Income |
5.2% - 45.95% |
Stocks
The tax treatment information below applies to stocks and funds that hold stocks.
Short-Term Gains and Losses
Profits/losses from stocks held for one year or less are considered short-term gains/losses.
If a short-term stock is sold for a profit (gain), the profit is treated as ordinary income. The profit will be taxed the same as any income you earned in that year.
If a short-term stock is sold for a loss, the loss can be deducted from the investors income, effectively lowering their income. There is currently a $3,000 limit to how much losses from stocks can be deducted from income in a single year. Additional losses can be carried over to the next year.
Long-Term Gains and Losses
Stocks held for more than one year or less are considered long-term stocks. Gains on long-term stocks are subject to long term capital gains tax.
Dividends
Dividends paid out by stocks are treated as long term capital gains or ordinary income depending on whether they are "qualified".
Dividends are generally considered qualified if they are paid out by a U.S. corporation and you’ve held the stock for at least 61 days. An exception are dividends for REIT’s which are generally not considered qualified. In certain cases, dividends paid by foreign corporations may also be qualified.
Bond Funds
Capital Gains
Gains and losses from selling bond funds are subject to same tax treatment as stocks.
Interest
Interest is either tax-exempt or treated as ordinary income depending on the type of bond fund. U.S. treasuries are generally tax-exempt at the state/local level. Interest from municipal bonds is generally tax exempt at the federal level and may be tax-exempt at the state/local level depending on the state and where the bonds were issued.
Collectibles
The tax rate on collectible capital gains is a maximum 28% rate or the rate at which the gain would be taxed if it were ordinary income, if lower. Gold, silver, artwork, and fine wine are examples of assets that the IRS considered collectibles.
Physically backed precious metal ETF’s (GLD/SLV) incur a maximum 28% tax rate for long term gains and are taxed as ordinary income for short term gains.