Investing and saving is something that people are doing more of now.
Considering the way of the world, just having a 9 to 5 job is not enough anymore, so more people are turning to alternative methods to use their spare change effectively.
However, before, the tax that came with things such as capital gains was not so debilitating, but we are not living in the same world anymore, and taxes that were once just a pest are now harder to bear for many.
Thanks to political disputes and economical distress thanks to the pandemic that shook the globe over the last 2 years, taxes are rising ever higher as well as many other costs.
At face value, the biggest financial problem of our age is gas prices and the cost of living at its most basic value, however, capital gains are seeing a difference too, and for many this just adds insult to injury.
But, the tax rate that will apply to your long-term capital gains does depend on what your taxable income rate is.
Note that short-term capital gains taxes are even higher.
We will look at the tax rates from 2021 to 2022, and hope that these will inspire us to fathom the projections for the next year as well!
Contents
Capital Gains Tax Rates 2021 To 2022
The federal income tax rate which will apply to your gains from stock sales, mutual funds or any of your other capital assets will depend entirely on how long you held the asset for, and what your taxable income actually is.
The gains that you make from the selling of your capital assets which you held for at least one year will be considered long-term gains, and these can be taxed at anything from 0% to 20%.
That being said, whether you are taxed at 20%, 15% or 0% will depend on what your taxable income is. The higher your incomes are, the higher the rate will be overall.
So, if you are working out your income tax return, then the capital gains income thresholds will look in a certain way.
Long Term Capital Gains Tax 2021 & 2022
This is where we want to look at the changes over the years. You will have done last year’s tax return already most likely, so now it is time to do it next year.
We will look at the difference between 2021 and 2022 in the taxable income rates to give you a better idea of what you are dealing with.
2021
| Tax rate for capital gains | Single taxable income | Married (separately) taxable income | Head of home taxable income | Married (joint) taxable income |
| 0% | $40,400 (or lower) | $40,400 (or lower) | $54,100 (or lower) | $80,800 (or lower) |
| 15% | $40,401 – $445,850 | $40,401 – $250,800 | $54,101 – $473. 750 | $80,801 – $501,600 |
| 20% | $445,850 and above | $250,800 and above | $473,750 and above | $501,600 and above |
Now let’s look at the difference this year…
2022
| Tax rate for capital gains | Single taxable income | Married (separately) taxable income | Head of home taxable income | Married (joint) taxable income |
| 0% | $41,675 (or lower) | $41, 675 (or lower) | $55,800 (or lower) | $83,350 (or lower) |
| 15% | $41,675 – $459,750 | $41,675 – $258,600 | $55,800 – $488,500 | $83,350 – $517,200 |
| 20% | $459,750 and above | $258,600 and above | $488,500 and above | $517,200 and above |
As you can see it is not all that bad, for lower income households, you can see almost no paid tax required.
If you need to pay tax on short-term capital gains, then this is a different story, you will pay the same rate on this as you would on your wages and typical household income.
This can range from 10 to 27 % depending on your overall taxable income.
Surtax On Investment Incomes
However, there is something else you need to think about, surtax, which you pay on top of your investment income, it is usually around 3.8%, and you will have to pay it on top of your capital gains tax.
It will include, dividends, passive rents, royalties, annuities, gains, and so on.
You will have to pay surtax no matter who you are, whether you’re single or if you are the head of a household with a modified income over $250,000. No matter who you are.
As of January this year we see the current version of the BBA, which indicated that surtax would cover NII that comes from the standard form of trading, as well as business for joint filers with a gross income over $500,000.
This act passed in December, although it stalled with the senate in January.
Thinking About Last Year’s Proposal By The House Of Democrats
So, to really think about this we need to consider what actually happened with the tax over the last year.
In spite of speculation on the changes to CGT and IHT the Chancellor shot down any reform in 2021, commentators have predicted increases based on government payment needs that incurred during borrowing during the 2020 pandemic.
Before the pandemic struck the Office of Tax Simplification produced reports into CGT and IHT that would have impacted rural business and farmers.
This included the increase of GT rates, so they were more similar to income tax, which was a big problem for anyone looking to sell property.
They also wanted to remove a tax-free uplift on death for inherited assets, which would have reduced benefit to farmers who hung onto assets and gave them to family upon their death.
Overall
To summarize, many of the OTS proposals did not pass, however, we can see there are some increases in tax for capital gains.
Yet, for those with capital gains in lower income households, things are not so bad.
If you earn less than $41,000 a year, your capital gains pay 0% tax. So, in spite of increases, there is a silver lining.
