Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.
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Investors usually need to pay taxes on their stocks when and if they sell them, assuming they’ve accrued a capital gain (or profit) from the sale, and the shares are held in a taxable account.
But there are other circumstances when stock holdings may generate a tax liability for an investor: for example, when an investor earns dividends.
This is important for investors to understand so that they can plan for the tax implications of their investment strategy.
An important note: The following should not be considered tax advice. Below, you’ll learn about some tax guidelines, but to fully understand the implications, it’s wise to consult a tax professional.
Key Points
• When an investor sells a stock for more than they paid for it, and realizes a profit, that gain is generally subject to capital gains tax.
• If the stock was held for a year or less, the gain is considered short term and is subject to federal income tax rates, which range from 10% to 37%.
• If the stock was held for over a year, it’s a long-term gain, which is subject to long-term capital gains tax rates, which range from 0% to 20%, depending on the investor’s income and filing status.
• Dividends earned from dividend-paying stocks are also subject to tax, even if the investor doesn’t sell the stock and realize a gain.
• Stocks sold within a tax-deferred account, such as a qualified retirement account, are not subject to capital gains tax. (Withdrawals from tax-deferred accounts are taxed, however.)
Do You Have to Pay Taxes on Stocks?
Broadly speaking, yes, investors need to pay taxes on their stock holdings when they sell them for a profit, and when they’re selling shares within a taxable account. Selling stocks in a tax-deferred account, such as an online IRA or 401(k), does not trigger tax on profits from the sale (though withdrawals will be taxed).
The type of tax you need to pay on profit from the sale of a stock depends on how long you’ve held the stock, your income, and filing status. This applies when you’re investing online and through a traditional brokerage firm.
Typically, investors need to pay capital gains tax when they sell a stock — the sale of which usually triggers a taxable event in the form of either a gain or a loss. The main question is: when do you need to pay taxes on stocks, and what else, besides a sale, could trigger a taxable event?
When Do You Pay Taxes on Stocks?
There are several scenarios in which you may owe taxes related to the stocks you hold in an investment account. The most well known is the tax liability incurred when you sell a stock that has appreciated in value since you purchased it. The difference in value is referred to as a capital gain. When you have capital gains, you must pay tax on those earnings.
Capital gains have their own special tax levels and rules. To get a sense of what you might owe after selling a stock, you’d need to check the capital gains tax rate for 2025 or 2026 – more on that below.
You will only owe capital gains tax if your investments are sold for more than you paid for them (you turn a profit from the sale). That’s important to consider – especially if you’re trying to get a sense of taxes, fees, and ROI on your investments.
There are two types of capital gains: Short-term gains and long-term gains, and they’re taxed at different rates.
Short-Term Capital Gains
Short-term capital gains occur when you sell an asset that you’ve owned for one year or less, and which gained in value within that time frame. These gains would be taxed at the same rate as your federal income tax bracket, so they’re important for day traders to consider.
Short-Term Capital Gains Tax Rates for Tax Year 2025
This table shows the federal marginal income tax rates, by filing status and income bracket, for tax year 2025, which apply to short-term capital gains (for tax returns that are usually filed in 2026)
| Marginal Rate | Single filers | Married, filing jointly | Head of household | Married, filing separately |
|---|---|---|---|---|
| 10% | $0 to $11,925 | $0 to $23,850 | Up to $17,000 | $0 to $11,925 |
| 12% | $11,926 to $48,475 | $23,851 to $96,950 | $17,001 to $64,850 | $11,926 to $48,475 |
| 22% | $48,476 to $103,350 | $96,951 to $206,700 | $64,851 to $103,350 | $48,476 to $103,350 |
| 24% | $103,351 to $197,300 | $206,701 to $394,600 | $103,351 to $197,300 | $103,351 to $197,300 |
| 32% | $197,301 to $250,525 | $394,601 to $501,050 | $197,301 to $250,500 | $197,301 to $250,525 |
| 35% | $250,526 to $626,350 | $501,051 to $751,600 | $250,501 to $626,350 | $250,526 to $375,800 |
| 37% | Over $626,350 | Over $751,600 | Over $626,350 | Over $375,800 |
Short-Term Capital Gains Tax Rates for Tax Year 2026
This table shows the federal marginal income tax rates, by filing status and income bracket, for tax year 2026, which apply to short-term capital gains (for tax returns that are usually filed in 2027).
| Marginal Rate | Single filers | Married, filing jointly | Head of household | Married, filing separately |
|---|---|---|---|---|
| 10% | $0 to $12,400 | $0 to $24,800 | $0 to $17,700 | $0 to $12,400 |
| 12% | $12,401 to $50,400 | $24,801 to $100,800 | $17,701 to $67,450 | $12,401 to $50,400 |
| 22% | $50,401 to $105,700 | $100,801 to $211,400 | $67,451 to $105,700 | $50,401 to $105,700 |
| 24% | $105,701 to $201,775 | $211,401 to $403,550 | $105,701 to $201,750 | $105,701 to $201,775 |
| 32% | $201,776 to $256,225 | $403,551 to $512,450 | $201,751 to $256,200 | $201,776 to $256,225 |
| 35% | $256,226 to $640,600 | $512,451 to $768,700 | $256,201 to $640,600 | $256,226 to $384,350 |
| 37% | Over $640,600 | Over $768,700 | Over $640,600 | Over $384,350 |
Long-Term Capital Gains
Long-term capital gains tax applies when you sell an asset that gained in value after holding it for more than a year. Depending on your taxable income and tax filing status, you’d be taxed at one of these three rates: 0%, 15%, or 20%.
Overall, long-term capital gains tax rates, according to the IRS, are typically lower than those on short-term capital gains.
Long-Term Capital Gains Tax Rates for 2025
The following chart shows the long-term capital gains tax rates, by income bracket and filing status, for the 2025 tax year, according to the IRS.
| Capital Gains Tax Rate | Single | Married, filing jointly | Married, filing separately | Head of household |
|---|---|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 | Up to $48,350 | Up to $64,750 |
| 15% | $48,351 to $533,400 | $96,701 to $600,050 | $48,351 to $300,000 | $64,751 – $566,700 |
| 20% | Over $533,400 | Over $600,050 | Over $300,000 | Over $566,700 |
Long-Term Capital Gains Tax Rates for 2026
The following table shows the long-term capital gains tax rates for the 2026 tax year by income and status, according to the IRS.
| Capital Gains Tax Rate | Single | Married, filing jointly | Married, filing separately | Head of household |
|---|---|---|---|---|
| 0% | Up to $49,450 | Up to $98,900 | Up to $49,450 | Up to $66,200 |
| 15% | $49,451 to $545,500 | $98,901 to $613,700 | $49,451 to $306,850 | $66,201 to $579,600 |
| 20% | Over $545,500 | Over $613,700 | Over $306,850 | Over $579,600 |
Capital Losses
If you sell a stock for less than you purchased it, the difference is called a capital loss. You can deduct your capital losses from your capital gains each year, and offset the amount in taxes you owe on your capital gains. Note that short term losses must be applied to short term gains first, and long term losses to long term gains first.
If your losses exceed your gains for the year, you can also apply up to $3,000 in investment losses to offset regular income taxes.
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Tax-Loss Harvesting
The process mentioned above – which involves deducting capital losses from your capital gains to secure tax savings – is called tax-loss harvesting. It’s a common technique often used near the end of the calendar year to try and minimize an investor’s tax liability.
Tax-loss harvesting is also commonly used as a part of a tax-efficient investing strategy. It may be worth speaking with a financial professional to get a better idea of whether it’s a good strategy for your specific situation.
Recommended: Stock Market Basics
Taxes on Investment Income
You may face taxes related to your stock investments even when you don’t sell them. This holds true in the event that the investments generate income.
Dividends
You may receive periodic dividends from some of your stocks when the company you’ve invested in earns a profit. If the dividends you earn add up to a large amount, you may be required to pay taxes on those earnings.
Each year, you will receive a 1099-DIV tax form for each stock or investment from which you received dividends. These forms will help you determine how much in taxes you owe.
There are two broad categories of dividends: qualified or ordinary (nonqualified) dividends. The IRS taxes ordinary dividends at your regular income tax rate.
The tax rate for qualified dividends is the same as long-term capital gains: 0%, 15%, or 20%, depending on your filing status and taxable income. This rate is usually lower than the one for nonqualified dividends, though those with a higher income typically pay a higher tax rate on dividends.
Interest Income
This money can come from brokerage account interest or from bond/mutual fund interest, as two examples, and it is taxed at your ordinary income rate. Municipal bonds are an exception because they’re exempt from federal taxes and, if issued from your state, may be exempt from state taxes, as well.
Net Investment Income Tax (NIIT)
Also called the Medicare tax, this is a flat rate investment income tax of 3.8% for taxpayers whose adjusted gross income exceeds $200,000 for single filers or $250,000 for married filers filing jointly.
Taxpayers who qualify may owe interest on the following types of investment income, among others: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, and income from businesses involved in trading of financial instruments or commodities.
Recommended: Investment Tax Rules Every Investor Should Know
When Do You Not Have to Pay Taxes on Stocks?
Again, this is a discussion to have with your tax professional. But there are a few situations where you may not pay taxes when selling a stock.
For example, if you are investing through a tax-deferred retirement investment account like an IRA or a 401(k), you won’t have to pay taxes on any gains when trading stocks inside the account.
However, with all tax-deferred accounts, withdrawals after age 59 ½ are subject to ordinary income tax. Withdrawals prior to that age could incur a penalty, in addition to being taxed.
4 Strategies to Pay Lower Taxes on Stocks
Do you have to pay taxes on stocks? While you’ll typically be subject to tax on any gains you realize from selling shares, there are some strategies that may help lower your tax bill.
Buy and Hold
Holding on to stocks long enough for dividends to become qualified and for any capital gains tax to be in the long-term category because they are typically taxed at a lower rate.
Tax-Loss Harvesting
As discussed, utilizing a tax-loss harvesting strategy can help you with offsetting your capital gains with capital losses.
Use Tax-Advantaged Accounts
Putting your investments into retirement accounts or other tax-advantaged accounts may help lower your tax liabilities.
Refrain From Taking Early Withdrawals
Avoiding the temptation to make early withdrawals from your 401(k) or other retirement accounts.
Taxes for Other Investments
Here’s a short rundown of the types of taxes to be aware of in regards to investments outside of stocks.
Mutual Funds
Mutual funds come in all sorts of different types, and owning mutual fund shares may involve tax liabilities for dividend income, as well as capital gains. Ultimately, an investor’s tax liability will depend on the type and amount of distribution they receive from the mutual fund, and if or when they sell their shares.
In addition, if an investor holds mutual funds in a tax-deferred account, capital gains won’t be taxed.
Property
“Property” is a broad category, and can include assets like real estate as well as land. The IRS looks at property the same way, from a taxation standpoint. In short, profit from selling a property is subject to capital gains taxes (not to be confused with property taxes, which are paid separately). In effect, if you buy a house and later sell it for a profit, that gain could be subject to capital gains taxes (although there are exclusions on gains, up to certain amounts).
Options
Taxes on options trading can be confusing, and tax liabilities will depend on the type of options an investor has traded. But generally speaking, capital gains taxes apply to gains from options trading activity — it may be wise to consult with a financial professional for more details.
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The Takeaway
For most investors, paying taxes on stocks involves paying capital gains taxes after they sell their holdings, or paying income tax on dividends. But it’s important to keep in mind that the tax implications of your investments will vary depending on the types of investments in your portfolio and the accounts you use, among other factors.
That’s why it may be worthwhile to work with an experienced accountant and a financial advisor who can help you understand and manage the complexities of different tax scenarios.
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FAQ
How much tax do you pay on stocks?
How much an investor pays in taxes on profits from selling stocks depends on several factors, including any applicable capital gain, how long they held the stock, and whether they received any income from the stock, such as dividend distributions.
Do you get taxed when you sell stocks?
Yes, investors who sell stocks at a profit may generate a tax liability in the form of capital gains taxes. If the investor has generated a capital loss as the result of a sale, they can use the loss to offset tax liabilities generated by other capital gains.
How do you avoid taxes on stocks?
There are several strategies that investors can use to try and avoid or minimize taxes on stocks, including utilizing a buy-and-hold strategy and tax-advantaged accounts.
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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
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