How much do you get taxed on trading income?

What You Need to Know About Taxes on Trading Income

When you make money from trading stocks, that income usually counts as capital gains—and how long you hold the investment determines how much you’ll pay in taxes.

If you sell a stock within a year of buying it, your profit is considered a short-term capital gain. That gain is taxed at your regular federal income tax rate, which can be as high as 37%, depending on your overall income. So, frequent traders should pay close attention to their holding periods—short-term trades can quickly push them into a higher tax bracket.

On the other hand, if you hold the investment for more than a year before selling, it’s classified as a long-term capital gain. These are taxed at lower rates—anywhere from 0% to 20%—again depending on your taxable income. For most people, this means a significantly lower tax bill compared to short-term gains.

But there’s another layer: if your income is above certain thresholds, you might also owe an extra 3.8% tax. This is the net investment income tax, which applies to both short- and long-term gains for high earners. For example, if you’re single and make over $200,000 (or $250,000 if married filing jointly), you could be on the hook for this additional charge.

State taxes may also apply, depending on where you live—some states tax capital gains as regular income, while others offer breaks. The bottom line? Trading isn’t just about buying low and selling high. It’s also about understanding how taxes can eat into your profits. Planning your trades with tax implications in mind can make a real difference in your net returns.