How does taxes work for a minor with stocks?
Here’s a summary of the main problem and the solutions discussed in the conversation:
- Main Problem: The user, El Mencho, is seeking clarification on how taxes apply to a minor earning income from stocks.
- Solution 1: Taxes on capital gains are determined by the difference between the purchase price and the sales price of the security. If sold for more than it was bought, the difference is taxable as a capital gain.
- Solution 2: Long-term capital gains (for securities held over a year) are taxed at lower rates than short-term capital gains, which are taxed as ordinary income.
- Solution 3: Due to the user’s minor status, additional considerations may apply, and it is recommended to consult a qualified tax advisor for personalized advice.
- Resource Provided: Links to resources on capital gains and the “Kiddie tax” were shared for further information.
Here’s the full thread
How does taxes work for a minor with stocks? Let’s say i earn $1000 in stocks how much would be taken away since im a minor
Thanks for reaching out with your question, @El Mencho.
When you sell a security, your tax liability is determined by how much you spent to buy the security (cost basis) and your sales price. If you sell a security for more than the original purchase price, the difference is taxable as a capital gain.
Now, capital gains are taxed at different rates depending on your tax bracket and how long you’ve held a security. If you sell a security that you’ve held for more than a year, any resulting capital gains are considered long-term and are taxed at lower rates than ordinary income. Conversely, short-term capital gains are taxed as ordinary income.
Learn more about capital gains and cost basis here: https://www.fidelity.com/tax-information/tax-topics/capital-gains-cost-basis
Being that you’re a minor, there may be additional factors that need to be taken into consideration.
Please keep in mind that Fidelity does not provide legal or tax advice; therefore, we highly encourage you to speak with a qualified tax advisor to look over your specific situation before moving forward.
Here is a resource you may find helpful on taxes for minors:
Understand the Kiddie tax: https://www.fidelity.com/learning-center/personal-finance/kiddie-tax
Let us know if you have additional questions. We appreciate your engagement here on Discord! 🟢