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Answer:
Dear
D. Lee,
What
a good, timely question.
You
will not have to pay capital gains taxes on a stock
that you own until you sell it. Then the amount you
pay will depend upon three things:
(1)
How much you made on the stock
(2) How long you've owned the stock
(3) Your tax bracket.
The
advantages of long-term ownership...
There
are tax advantages to keeping an investment for more
than twelve months because if you sell at a profit
after that length of time, you pay the lower long-term
capital gains tax on your profits -- which is 20%.
$Tip:
Beginning in the year 2006, the rate will be 18%
for assets bought on or after January 1, 2001 and
held for more than five years.
If
you're in one of the two lowest federal income tax
brackets -- the 10% bracket created by the 2001 tax
bill and the 15% bracket, then long term capital gains
is 10% for assets held more than 12 months and 8%
(beginning in 2001) for assets held for more than
five years.
The
disadvantages of short-term ownership...
On
the other hand, if you hold the stock for less than
12 months, your transaction falls into the short-term
category. And, in this case you will face the higher
short-term capital gain. This rate will be the same
as your regular tax rate -- 27.5%, 30.5%, 35.5% or,
a whopping 39.1%. It could also, of course be just
15% if you're in the 15% bracket.
About
dividends paid on your stock...
If
the stock paid a cash dividend during the year, you
will receive a Form 1099-DIV in the mail from the
company. The 1099-DIV spells out precisely how much
you received and how much you must report to the IRS.
This will be the case even if you reinvested all your
dividends to buy more shares of the stock.
All
dividends must be reported as income on your annual
tax return.
Good
luck!
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