The Situation

How Capital Gains Tax Actually Works

When you sell an investment for more than you paid, the gain is taxable. The tax rate depends on how long you held it: under one year (short-term) is taxed as ordinary income at your marginal rate. Over one year (long-term) is taxed at preferential rates of 0%, 15%, or 20% depending on your total income.

A short-term gain at 32% vs a long-term gain at 15% on the same profit is a 17-percentage-point difference — entirely controlled by when you sell.

— Worthune Decision Framework

• You've sold investments without checking whether you qualified for long-term capital gains rates
• You've never modeled your taxable income to determine which capital gains rate bracket you fall into
• You have unrealized gains in a taxable account and haven't considered the optimal timing for realizing them