The stock market had yet another record-breaking year in 2020. While that means many portfolios likely ended up in the black, it could also mean substantial tax bills for investors who sold stocks last year — especially those that were not tucked inside an individual retirement account, a 401(k) or some other tax-advantaged retirement account.
Investors who sold individual-company stocks while the market was up could be liable for capital gains taxes.
After dropping nearly 20% in March as the pandemic first gripped the U.S., the stock market indexes made a powerful comeback.
Someone who bought Tesla stock in March at its lowest price of $71 and then sold those shares in December at its highest price of $718 would have a capital gain of $647 per share.
Generally, any profit that an investor makes on the sale of stock is taxable at either 0%, 15% or 20%, depending on that person's taxable income and filing status if the shares were owned for more than a year. Stocks held for less than a year are taxed at the shareholder's ordinary income tax rate.
Also, any dividends received from stocks are usually taxable.
Most single people fall into the 15% capital gains rate, which applies to incomes that fall between $40,001 and $441,000. Married couples who earn between $80,001 and $496,600 have a capital-gains tax rate of 15%.
"We had clients who sold investments in 2020 in anticipation of a possible bump in taxes on capital gains in 2021," said Alex Kindler, a partner at H2R CPA in Green Tree, Pa.
