Short-term Capital Gains Tax Rate

Capital gains taxes are levied on selling an investment or asset exceeding its value. For the Internal Revenue Service, the gains realized from the transaction are taxable.

Will pay the long-term and short-term capital gains tax rate according to the length of time you held the investment before selling it. However, short-term capital gains are calculated at ordinary income tax rates.

What are the 2021 short-term capital gains tax rates?

The IRS uses ordinary income tax rates to calculate the capital gains tax. The tax bracket determines the tax on the short-term sale of your investments.

The short-term capital gains tax rates for 2021 depend on both your income and your filing status. To see how the rates compare, you can use this chart as a guide:

Short-term Capital Gains Tax Rates, 2021
Velocity Individual contributors Married couples filing jointly Head of household
10% To $9,950 To $19,900 To $19,900
12% $9,951 – $40,525 $19,901 – $81,050 $14,201 – $54,200
22% $40,526 – $86,375 $81,051 – $172,750 $54,201 – $86,350
24% $86,376 – $164,925 $172,751 – $329,850 $86,351 – $164,900
32% $164,926 – $209,425 $329,851 – $418,850 $164,901 – $209,400
35% $209,426 – $523,600 $418,851 – $628,300 $209,401 – $523,600
37% $523,601 or more $628,301 or more $523,601 or more

Can I minimize my short-term capital gains tax rate?

Your income and marital status determine the tax bracket, yet you can minimize your short-term capital gains tax liability. To achieve this, you can take a few steps such as:

Having harvesting losses

You can offset capital gains by selling some lost investments when you reap tax losses. The process is a useful strategy in a taxable brokerage account. Losses can be harvested when you employ an advisor to manage your investments.

Hold investments for the long term

Avoiding short-term capital gains fees is easier by holding investments longer; you only need to keep them for a year. It is an effective strategy when you are an active day trader. It is also a solution if you have a buy-and-hold approach to building a portfolio.

Start reinvesting dividends

It is an effective method to buy additional shares without using money from your pocket. Normally, it is a technique used when you have stocks that earn you dividends, you use those same earnings to reinvest, and it helps you strengthen your portfolio.

That way, you will be less tempted to sell your earning stocks and can avoid short-term capital gains charges. Furthermore, remember that dividends are taxable, even if you reinvest them.

Consider a new location for your assets

Proper asset allocation is essential to having a diversified portfolio, and from a tax perspective, the location of assets matters a lot. Capital gains taxes apply only to investments in taxable brokerage accounts. So, you could have some of your assets in a tax-advantaged account, such as an IRA or 401(k).