how earnings in the stock market get taxed?

[icpooreman]

does income made in the stock market get taxed the same as the income I make at work? I know about the long term capital gains stuff but what else.

Does it matter what tax bracket I'm in as to how much it gets taxed? Do I have to pay state tax, social security etc??

Say I Make 100 dollars in the stock market and I was in a 25% tax bracket and took out the hundred I made before a year what would I be left with?
so wait if I buy 1000 dollars worth of stock and the price of the stock increases to give me 1200 dollars worth of stock at the end of the year they tax it even if my money's still invested in the stock? How do they differentiate this profit between a short term and long term gain then?
"Dividends are tax at your normal tax bracket, except for qualified dividends, which are taxed at maximum of 15% (5% for those in 10% or 15% bracket), and you have to pay federal and state tax, but not social security or medicare tax."
so if I made 100 dollars in the stock market in over a year I would get taxed 15% + federal tax of 25% + state tax? Is that right? that ends up being over 40% of the income going to taxes.

[Wayne Z]

Short term gains in the stock market are taxed as ordinary income. You pay regular federal and state taxes on the gain but not social security or medicare.

I am not sure what you mean by "took out the..." money. If you have a brokerage account and you put $1000 in and buy a stock for $1000 and then sell the stock a few month's later for $1200, the $200 is taxed whether you leave it in the brokerage account or take in out.

[PepsiLime]

Interest income on anything is taxed at your normal tax bracket, but you only have to pay federal and state tax, not social security or medicare tax.

Dividends are tax at your normal tax bracket, except for qualified dividends, which are taxed at maximum of 15% (5% for those in 10% or 15% bracket), and you have to pay federal and state tax, but not social security or medicare tax.

Capital gains can be either short term (security sold with owning it for less than 1 year), which is taxed at your regular tax bracket, and are only subject to federal and state tax, not social security or medicare tax. Long term capital gains (security sold with owning it for 1 year or longer, except for inherited securities which are treated as long-term no matter what the holding period) are taxed at maximum of 15% (5% for those in 10% or 15% bracket), and are only subject to federal and state income taxes, but not social security or medicare tax.

Earned income is basically what is subject to social security and medicare taxes, and is basically wages, or self employment income through a Schedule C or F business.

Unearned income (interest, dividends, capital gains, social security, IRA, pension, state tax refunds, etc) are not subject to social security or medicare taxes.

If you made $100 in the stock market and were in the 25% tax bracket, and sold the stock with owning it less than 1 year, it would be short term gain, and would taxed at the 25% level, so you would end up with $75 after taxes.

[bostonianinmo]

There are 3 tax situations with regards to market investments. Ordinary dividends are taxed as ordinary income at your marginal rate. Qualified difidends are taxed a long-term capital gains, usually at 15%. Captial gains -- the profit you (hopefully!) make when you sell stocks -- are taxed as ordinary income if the shares are held for one year or less or as long-term capital gains if held for over one year.

[ninasgramma]

First of all, the worst that can happen is that your net gain from investment in most stocks is taxed at your tax rate.

Long-term capital gains: maximum 15%
Most stock dividends: maximum 15%
Short-term capital gains: maximum your tax bracket

No social security or medicare tax is paid on investment income.

You pay taxes only when your investments generate income for you. This means your investments pay you interest or dividends, or you sell you invesments for more than you pay for them.

If your investments increase in value and you do not sell them, you do not pay tax on the increase in value.

If your state has income tax, you will also pay state income tax on your investment income. States differ as to how they tax investment income.

[Omar B]

While the money is "growing" in the market (hopefully), it is not going to be taxed to you. You're only taxed on the dividends as you receive them and when you "take the money out" of the investment.

For instance -- let's say you buy 5 shares at $10 a share (total investment is $50). You leave it there for a while.

This summer, the company declared a $1 dividend per share. You get a check for $5 (since you had five shares).

Then next month you sell two shares at $12. Your realized gain is $4 (two shares @ $2 per share).

At the end of the year, the stock is worth $16. Since you still have three shares after your sale, the gain on that is $18.

Here's your tax situation:

Dividends: $5 (taxable)
Stock Gain (realized): $4 (taxable)
Stock Gain (unrealized): $18 (not taxable yet)

As to what the actual tax is on the $9, it will depend on what the rest of your tax return looks like (how much other income you have) as well as how long you have held on to the stock (one year or more qualifies for long-term gain) and how long you have held on to the stock with respect to when the dividend was declared.