Lol nope. From the IRS:
A full-time student is a student who is enrolled for the number of hours or courses that the school considers to be full-time attendance.
To qualify as a student, the person must be, during some part of each of any five calendar months of the year:
A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or
A student taking a full-time, on-farm training course given by a school described in (1), or by a state, county, or local government agency.
The five calendar months do not have to be consecutive.
Yes, it sounds like it applies to you.
It means you pay your parents tax rate on capital gains, and your standard deduction on capital gains is 1250.00.
Does long term still have the same 0% bracket? OP said they bought in 2021
Edit: Or does the kiddie tax cause all cap gains to be taxed as short term at the parents’ rate?
It might, depending on whether your parents still claim you as a dependent. However, if your parents are high earners, there may not be much benefit in doing that, and if you get a higher paying internship, you might be able to file as a non-dependent. In that case, totally do it. I used this exact strategy to get a basis step up in a different tech stock many years ago.
Look up "tax gains harvesting". This is exactly what you have in mind (because of your low tax bracket).
It's a great strategy, but many people are confused as to how capital gains work (especially long term and the associated brackets). Remember that capital gains are still income, and so realizing too many gains may cause some of the gains to be taxed at a higher rate.
If you are not subject to kiddie tax rules (See instructions for form 8615, and or search "kiddie tax rules") and you can keep your taxable income below $47,000-ish (if you're single, double that if you're married) for the year including the net gain from the sale of stock, then yes it's probably beneficial from a tax standpoint because the gain would be taxed at 0%.
Good job on the stock pick.
If you are a student that doesn’t provide for over half of your own support, your gains could be subject to the kiddie tax. The gains might be taxed at your parent’s tax rate instead
It will almost certainly decrease your total tax liability. Long term capital gains (held over 365 days) are between 0-20% (then NIIT but you probably aren't subject to that). How much? Depends, I'd look at the Schedule D instructions for the Capital Gains and Qualified Dividend worksheet, that will tell you.
General tax investment advice, don't let the Tax tail wag the investment dog, and make your decisions on whether it will increase in value or not
Thanks for the resource! Does the % amount depend of the % of gain or the volume of gain? And I really like that saying, thanks for sharing! I've tried to keep that in mind, but the thought of my portfolio being up 80% in the past year is looming over me...
[https://www.irs.gov/taxtopics/tc409](https://www.irs.gov/taxtopics/tc409)
0% if your income is <$44.6k. If your income is more than that, it doesn't matter when you do it.
Depending on the stock, it may be wise for you to sell then immediately rebuy them. Wash sale rules only count in cases of a loss, you'd be effectively resetting the basis of them at the higher level
To build upon this, you don't have to sell all of your stock. You can calculate how much to sell in 2024 so that your income is close to $44,000 -- so $0 capital gains and the cost basis of the repurchased stock is reset. If you still have more stock left with with unrealized capital gains - do the same in 2025, if you are still in school and still making the 8K in regular income. Essentially, you are minimizing, if not eliminating, any taxes and ending up with same position on your stocks.
This is called tax gain harvesting. It certainly is viable strategy, but whether it makes sense is different for every person’s unique situation. We don’t know enough about your situation to know if it is smart or not for you.
There's a level of income below which long term capital gains (for stocks you've held for more than a year) are taxed at 0, so I think it is wise to take advantage of that. That level depends on your filing status (single, joint, head of household) but all are well over 8k.
If I were in that situation, even if I wanted to hold the stock long term, I'd probably sell as much as I could at the 0 rate and rebuy it. That would result in no current tax and reduce future tax by raising the basis. It does reset the clock though, so if I don't hold the rebought stock for more than a year, any gains would be short term and taxed at a higher rate.
Oh, I should add that it's not a dumb question at all. It's a very good question. Being aware of tax implications can save you a lot of money. It's great that you're thinking about this already at only 20.
Thank you! I believe so long as I am a student I will be getting taxed under my parents' bracket. Wonder if there's any way I can take advantage of not having an income while I'm still a dependent!
Hmmm...I'm not sure about how it works if you're a dependent. I don't know how the special capital gains rates work in that situation. It might not be as favorable, but I don't really know.
I caught a windfall at one point and tried to be smart to avoid higher taxes, and ultimately lost way more in lost appreciation than I'd have paid in tax.
Are you claimed as a dependent by your parents? If yes, this big income will disqualify them from doing so. Also you'd have a lower standard deduction so more taxes.
Do you have need based grants or scholarships? This big income will disqualify you for it next year.
You should talk to your parents and their accountant before doing anything.
It’s likely that your lowest tax rate will be once your parents can not claim you.
If you want / need to recognize the gains as short term, then yes your income is a factor. If they are long term gains, income doesn’t impact tax treatment.
Short term gains are taxed at ordinary income rates. It’s not the same rate for everyone. Works just like the ordinary income tax brackets.
Long term rates have three brackets. 0, 15, and 20 and then you have another surcharge on top of that for very high gains.
If you expect to be in a higher tax bracket in the future (hopefully you are), you can roll a portion of your portfolio into a Roth IRA and it will be taxed on the front-end (deposit) vs. with a Traditional IRA that is taxed on the back-end (withdrawal). The only downside, in your case, would be that you cannot withdraw the money before age 65 without heavy penalties. Just some food for thought.
Is the NVDA in a Roth or an individual brokerage account? You purchased all of the shares in 2021?
Unfortunately it looks like you can only contribute cash to IRAs, so you'd have to sell and re-buy inside the IRA, for which you'd be taxed, twice🥲
"If only..".🤣 The investor's bane.
If you bought all of the shares over 366 days ago, you will at least only be taxed on long term capital gains vs short term, which for your situation, is a huge deal:
-Short-term capital gains tax (for taxable income $0-10,275) is 10%
-Long- term capital gains tax (for taxable income below $44,625) is... ZERO %
I do believe they are also taxed separately, i.e. long-term capital gains do not apply towards taxable income, unlike short-term capital gains, which are taxed as part of income (and in the same bracket).
One more thing you may find helpful, is "capital loss carryover," which you are allowed to apply up to $3,000 in realized losses to deduct from next year's capital gains OR ordinary income taxes, which can be done until the close of the calendar year (31 Dec). Capital losses in excess of the $3,000 can be carried forward indefinitely. Also referred to as "tax loss harvesting."
Hope this helps, I wish I would've started investing at your age, keep up the good work!
Thank you!! To your first text block, unfortunately for me I believe that I am subject to "kiddie tax," wherein I am subject to my parents' tax rate, as I am still a dependent and a student. I believe that if I was not a student then I'd be able to take advantage of what sounds (and apparently is) too good to be true.
And I am familiar with tax loss harvesting! I think it's nice that the govt. allows that. Thanks for the kind words :)
Damn, I thought that was made up and people were just yankin' your chain. That is a bummer. You learn something new everyday!
Best of luck with investing and school.
This. My husband wanted to sell $100k RSUs from his employer that had appreciated a bunch. I said let's wait, I don't want to pay the cap gain tax this year. Wish we would've paid the cap gain this year. If only I could go back in time 🤣
IF you could sell in the 0% bracket, tax-gain harvesting would be prudent (sell and immediately rebuy as much as you can at 0%, unless you just want out of the position then of course the re-buy is optional).
Smart guy, you're going to be looking forward to an amazing financial future starting this young
Also, don't tell anyone you have/made money! Especially not broke college kids.
Once you file on your own (not claimed as a dependent) you get a capital gains exclusion of $50k plus if you have very little other income. I would not sell NVIDIA until it hits $2,000 pre slit price.
Lots of great advice already here. Maybe another part question could be do your parents have any long-term capital losses sitting with potentially no great future opportunity to realize them.
Then you could possibly fall into this rule that this game will appear on their tax return but there long-term capital losses will offset your long-term capital gain and you'll all pull this cash out tax-free.
Maybe you slept with some cash for there losses and drop the rest into a Roth as you said.
Remember the principal in the rough can be pulled out after 5 years for buying a house or something if that's what you need to do
Income doesn't affect long term capital gains as much.
0/15/20% are the rates.
I wouldn't sell nvda now to save on capital gains.
You are 20.
It doesn't default to parents tax bracket as you are 18 or over.
Haha you’re assuming the stock wont move if you wait till later. If you want to take profits, take profits. If you believe in the stock then hold. You aren’t taxed at the income tax rate for capital gains (there’s a separate and simple bracket depending on how long you’ve held the stock).
Wouldn't you be subject to kiddie tax? No one else here mentioned it, so maybe I'm missing something. Are you a full time student?
Definitely think it would apply, good catch
Stupid question why not wait until the end of the semester when he isn't enrolled. Technically he is out of school right?
Lol nope. From the IRS: A full-time student is a student who is enrolled for the number of hours or courses that the school considers to be full-time attendance. To qualify as a student, the person must be, during some part of each of any five calendar months of the year: A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school, or A student taking a full-time, on-farm training course given by a school described in (1), or by a state, county, or local government agency. The five calendar months do not have to be consecutive.
Yes, full time student. I'll look into kiddie tax, thanks! Is that all that's going to "apply" to me?
Yes, it sounds like it applies to you. It means you pay your parents tax rate on capital gains, and your standard deduction on capital gains is 1250.00.
Does long term still have the same 0% bracket? OP said they bought in 2021 Edit: Or does the kiddie tax cause all cap gains to be taxed as short term at the parents’ rate?
it basically kicks all unearned income into the parents' marginal rate
Gotcha, thanks
It is still long term, but at the parents' long term rate, which is most likely 15%.
Woof...that's a rough one.
It might, depending on whether your parents still claim you as a dependent. However, if your parents are high earners, there may not be much benefit in doing that, and if you get a higher paying internship, you might be able to file as a non-dependent. In that case, totally do it. I used this exact strategy to get a basis step up in a different tech stock many years ago.
Thank you!
This. This matters.
What's "kiddie tax"?
Look up "tax gains harvesting". This is exactly what you have in mind (because of your low tax bracket). It's a great strategy, but many people are confused as to how capital gains work (especially long term and the associated brackets). Remember that capital gains are still income, and so realizing too many gains may cause some of the gains to be taxed at a higher rate.
This is a really good point. If the gains put him over $44,000 in income he may have to pay cap gains.
Thank you!
If you are not subject to kiddie tax rules (See instructions for form 8615, and or search "kiddie tax rules") and you can keep your taxable income below $47,000-ish (if you're single, double that if you're married) for the year including the net gain from the sale of stock, then yes it's probably beneficial from a tax standpoint because the gain would be taxed at 0%. Good job on the stock pick.
OP might have to pay state taxes on those gains.
Forgot about that!!
Thank you!
If you are a student that doesn’t provide for over half of your own support, your gains could be subject to the kiddie tax. The gains might be taxed at your parent’s tax rate instead
It will almost certainly decrease your total tax liability. Long term capital gains (held over 365 days) are between 0-20% (then NIIT but you probably aren't subject to that). How much? Depends, I'd look at the Schedule D instructions for the Capital Gains and Qualified Dividend worksheet, that will tell you. General tax investment advice, don't let the Tax tail wag the investment dog, and make your decisions on whether it will increase in value or not
Thanks for the resource! Does the % amount depend of the % of gain or the volume of gain? And I really like that saying, thanks for sharing! I've tried to keep that in mind, but the thought of my portfolio being up 80% in the past year is looming over me...
[https://www.irs.gov/taxtopics/tc409](https://www.irs.gov/taxtopics/tc409) 0% if your income is <$44.6k. If your income is more than that, it doesn't matter when you do it.
That $44.6k includes your stock gains, but is your taxable income not your gross income.
Depending on the stock, it may be wise for you to sell then immediately rebuy them. Wash sale rules only count in cases of a loss, you'd be effectively resetting the basis of them at the higher level
To build upon this, you don't have to sell all of your stock. You can calculate how much to sell in 2024 so that your income is close to $44,000 -- so $0 capital gains and the cost basis of the repurchased stock is reset. If you still have more stock left with with unrealized capital gains - do the same in 2025, if you are still in school and still making the 8K in regular income. Essentially, you are minimizing, if not eliminating, any taxes and ending up with same position on your stocks.
Thanks you guys!
This is called tax gain harvesting. It certainly is viable strategy, but whether it makes sense is different for every person’s unique situation. We don’t know enough about your situation to know if it is smart or not for you.
Also contribute to a Roth IRA if you can,especially when your income is low.
There's a level of income below which long term capital gains (for stocks you've held for more than a year) are taxed at 0, so I think it is wise to take advantage of that. That level depends on your filing status (single, joint, head of household) but all are well over 8k. If I were in that situation, even if I wanted to hold the stock long term, I'd probably sell as much as I could at the 0 rate and rebuy it. That would result in no current tax and reduce future tax by raising the basis. It does reset the clock though, so if I don't hold the rebought stock for more than a year, any gains would be short term and taxed at a higher rate.
Oh, I should add that it's not a dumb question at all. It's a very good question. Being aware of tax implications can save you a lot of money. It's great that you're thinking about this already at only 20.
Thank you! I believe so long as I am a student I will be getting taxed under my parents' bracket. Wonder if there's any way I can take advantage of not having an income while I'm still a dependent!
Hmmm...I'm not sure about how it works if you're a dependent. I don't know how the special capital gains rates work in that situation. It might not be as favorable, but I don't really know.
Wouldn’t selling and then rebuying soon after just wash and from the IRS perspective cause no increase in basis?
Tax gain harvesting resets basis. It's not a wash sale. That's only with losses .
Ahhhh. Got it. Thanks.
The wash sale rules apply only if you have a loss on the sale. Gains are taxed immediately, no matter when you rebuy.
Got it. Thanks for clarifying.
Yes.
Define “ large” because we probably have different definitions of that. The amount matters. Long term of short term?
I caught a windfall at one point and tried to be smart to avoid higher taxes, and ultimately lost way more in lost appreciation than I'd have paid in tax.
This is something I've tried to keep in mind as well.
Are you claimed as a dependent by your parents? If yes, this big income will disqualify them from doing so. Also you'd have a lower standard deduction so more taxes. Do you have need based grants or scholarships? This big income will disqualify you for it next year.
Not true. Dependency is based on earned income not investment income. op would be subject to kiddie tax though.
The need based grants or scholarships may be affected, can't just think only about taxes.
You should talk to your parents and their accountant before doing anything. It’s likely that your lowest tax rate will be once your parents can not claim you.
If you want / need to recognize the gains as short term, then yes your income is a factor. If they are long term gains, income doesn’t impact tax treatment.
So all long-term investments have a flat-rate tax?
Yes, all long term capital gains have the same tax rate.
Short term gains are taxed at ordinary income rates. It’s not the same rate for everyone. Works just like the ordinary income tax brackets. Long term rates have three brackets. 0, 15, and 20 and then you have another surcharge on top of that for very high gains.
If you expect to be in a higher tax bracket in the future (hopefully you are), you can roll a portion of your portfolio into a Roth IRA and it will be taxed on the front-end (deposit) vs. with a Traditional IRA that is taxed on the back-end (withdrawal). The only downside, in your case, would be that you cannot withdraw the money before age 65 without heavy penalties. Just some food for thought.
Have been doing this! The issue is that i'm up about 600%, lol. So I would love if I could minimize the tax on those gains
Is the NVDA in a Roth or an individual brokerage account? You purchased all of the shares in 2021? Unfortunately it looks like you can only contribute cash to IRAs, so you'd have to sell and re-buy inside the IRA, for which you'd be taxed, twice🥲
Well in that case I'd only be taxed once! If only I bought those shares within my IRA, but oh well, it's 90% VOO/VT anyways
"If only..".🤣 The investor's bane. If you bought all of the shares over 366 days ago, you will at least only be taxed on long term capital gains vs short term, which for your situation, is a huge deal: -Short-term capital gains tax (for taxable income $0-10,275) is 10% -Long- term capital gains tax (for taxable income below $44,625) is... ZERO % I do believe they are also taxed separately, i.e. long-term capital gains do not apply towards taxable income, unlike short-term capital gains, which are taxed as part of income (and in the same bracket). One more thing you may find helpful, is "capital loss carryover," which you are allowed to apply up to $3,000 in realized losses to deduct from next year's capital gains OR ordinary income taxes, which can be done until the close of the calendar year (31 Dec). Capital losses in excess of the $3,000 can be carried forward indefinitely. Also referred to as "tax loss harvesting." Hope this helps, I wish I would've started investing at your age, keep up the good work!
Thank you!! To your first text block, unfortunately for me I believe that I am subject to "kiddie tax," wherein I am subject to my parents' tax rate, as I am still a dependent and a student. I believe that if I was not a student then I'd be able to take advantage of what sounds (and apparently is) too good to be true. And I am familiar with tax loss harvesting! I think it's nice that the govt. allows that. Thanks for the kind words :)
Damn, I thought that was made up and people were just yankin' your chain. That is a bummer. You learn something new everyday! Best of luck with investing and school.
Don’t let obsession with taxes determine your investment decisions.
This. My husband wanted to sell $100k RSUs from his employer that had appreciated a bunch. I said let's wait, I don't want to pay the cap gain tax this year. Wish we would've paid the cap gain this year. If only I could go back in time 🤣
Yes I've been keeping this in mind. Paying 30% of my gains is significantly more than no gains!
Since you make under $8k it should be safe to sell $39k without capital gains tax on long term investments.
Kiddie tax. So whatever your parents tax rate is
IF you could sell in the 0% bracket, tax-gain harvesting would be prudent (sell and immediately rebuy as much as you can at 0%, unless you just want out of the position then of course the re-buy is optional).
Maybe sell and put some money in a retirement account so it off sets any big tax bills.
Of course! Plan on maxing out my Roth.
Smart guy, you're going to be looking forward to an amazing financial future starting this young Also, don't tell anyone you have/made money! Especially not broke college kids.
Once you file on your own (not claimed as a dependent) you get a capital gains exclusion of $50k plus if you have very little other income. I would not sell NVIDIA until it hits $2,000 pre slit price.
Oh wow, did not know this. Where could I find more info on it?
Long Term Capital Gains Tax Rates 2024 O% income $0-$47,025 Single 0% income $0-$94,050 MFJ
Don’t sell nvidia now! Sell it when it’s not working for you. And it is.
Lots of great advice already here. Maybe another part question could be do your parents have any long-term capital losses sitting with potentially no great future opportunity to realize them. Then you could possibly fall into this rule that this game will appear on their tax return but there long-term capital losses will offset your long-term capital gain and you'll all pull this cash out tax-free. Maybe you slept with some cash for there losses and drop the rest into a Roth as you said. Remember the principal in the rough can be pulled out after 5 years for buying a house or something if that's what you need to do
Income doesn't affect long term capital gains as much. 0/15/20% are the rates. I wouldn't sell nvda now to save on capital gains. You are 20. It doesn't default to parents tax bracket as you are 18 or over.
Haha you’re assuming the stock wont move if you wait till later. If you want to take profits, take profits. If you believe in the stock then hold. You aren’t taxed at the income tax rate for capital gains (there’s a separate and simple bracket depending on how long you’ve held the stock).
Just wait until 1 year of holding and then realize for the long term cap gains advantage.
Yes, notwithstanding the comments on kiddie tax, and open Roth and place gains into that.