Farwah Jafri | June 25 2021
Are you planning to sell your stocks for a profit? Sounds great. But don’t count your chickens before they hatch. Making money on an investment in a taxable account means you’ve earned a capital gain and you’ll have to pay certain taxes on it.
If you are looking for ways to calculate capital gains tax in 2021, you might be able to find some online capital gains tax calculators that can help you to arrive at an estimated figure. But before you jump into that, it is better to gain some understanding of the nitty-gritty details involved in capital gains tax calculations.
Capital gains taxes are a type of tax levied on the gains or profits earned from the sale of assets such as stocks, real estate, businesses and other types of investments.
It is important to note that taxes are only due when you sell the asset and capital gains have been realized. So even if your stocks or any other investments grow in value during the period where you hold it, it will not incur capital gains taxes until they are sold.
Another aspect to account for is that capital gains tax only applies to profits from the sale of those assets which are held for more than a year. Hence, referred to as “long-term capital gains.” So, if you sell your assets after holding them for a year or less, the profits or “short-term gains” that you earn will be taxed as ordinary income.
In simpler terms, the calculation of capital gains tax involves deducting the original cost of an asset from the total sale price.
The federal income tax rate that applies to your capital gains depends on two main elements:
You’ll be levied capital gains tax at either 0 percent, 15 percent or 20 percent. Now, at which rate you will be taxed depends on:
The higher your income, the higher the rate. Here are the capital gains taxable income thresholds for the 2020 and 2021 tax year:
See Also: 2021 Federal Income Tax Brackets & Rates
| FILING STATUS | 0% RATE | 15% RATE | 20% RATE |
| Single | Up to $40,000 | $40,001 – $441,450 | Over $441,450 |
| Married filing jointly | Up to $80,000 | $80,001 – $496,600 | Over $496,600 |
| Married filing separately | Up to $40,000 | $40,001 – $248,300 | Over $248,300 |
| Head of household | Up to $53,600 | $53,601 – $469,050 | Over $469,050 |
Source: Internal Revenue Service
| FILING STATUS | 0% RATE | 15% RATE | 20% RATE |
| Single | Up to $40,400 | $40,401 – $445,850 | Over $445,850 |
| Married filing jointly | Up to $80,800 | $80,801 – $501,600 | Over $501,600 |
| Married filing separately | Up to $40,400 | $40,401 – $250,800 | Over $250,800 |
| Head of household | Up to $54,100 | $54,101 – $473,750 | Over $473,750 |
Source: Internal Revenue Service
The long-term capital gains tax rates are much lower than the ordinary income tax rate. Referring to the table showing capital gains tax rates for 2020, if you are a single filer, you won’t be liable to pay any capital gains tax if your total taxable income is $40,000 or below. In case, it’s between $40,001 – $441,450, you’ll pay 15 percent on capital gains. You will be taxed at the highest rate, that’s 20% for taxable income which is over $445,850.
The same conditions apply in 2021, the higher your taxable income, the higher will be the capital gains tax levied on it. The amount of tax will depend on your filing status and tax bracket.
Short-term capital gains tax is levied on profits you earn from selling an asset you’ve held for less than a year. Short-term capital gains taxes are taxed at the same rate as applied to your ordinary or regular income, such as salary from a job. The 2020 tax brackets are 10 % 12 %, 22 %, 24 %, 32 %, 35 %, and 37 %, depending on your taxable income. So, there is no 0% rate as in long-term capital gains tax.
| Tax Rate | Single | Married Filing Jointly or Qualifying Widow | Married Filing Separately | Heads of Households |
| 10% | $0 to $9,875 | $0 t0 $19,750 | $0 to $9,875 | $0 to 14,100 |
| 12% | $9,876 to $40,125 | $14,101 to $53,700 | $19,751 to $80,250 | $9,876 to $40,125 |
| 22% | $40,126 to $85,525 | $53,701 to $85,500 | $80,251 to $171,050 | $40,126 to $85,525 |
| 24% | $85,526 to $163,300 | $85,501 to $163,300 | $171,051 to $326,600 | $85,526 to $163,300 |
| 32% | $163,301 to $207,350 | $163,301 to $207,350 | $326,601 to $414,700 | $163,301 to $207,350 |
| 35% | $207,351 to $518,400 | $207,351 to $518,400 | $414,701 to $622,050 | $207,351 to $311,025 |
| 37% | $518,401 or more | $518,401 or more | $622,051 or more | $311,026 or more |
Source: Internal Revenue Service
| Tax Rate | Single | Married Individuals Filing Joint Returns | Married filing separately | Heads of Households |
| 10% | $0 to $9,950 | $0 to $19,900 | $0 to $9,950 | $0 to $14,200 |
| 12% | $9,951 to $40,525 | $19,901 to $81,050 | $9,951 to $40,525 | $14,201 to $54,200 |
| 22% | $40,526 to $86,375 | $81,051 to $172,750 | $40,526 to $86,375 | $54,201 to $86,350 |
| 24% | $86,376 to $164,925 | $172,751 to $329,850 | $86,376 to $164,925 | $86,351 to $164,900 |
| 32% | $164,926 to $209,425 | $329,851 to $418,850 | $164,926 to $209,425 | $164,901 to $209,400 |
| 35% | $209,426 to $523,600 | $418,851 to $628,300 | $209,426 to $314,150 | $209,401 to $523,600 |
| 37% | $523,601 or more | $628,301 or more | $314,151 or more | $523,601 or more |
Source: Internal Revenue Service
In addition to the capital gains tax, you might have to pay a surtax called The Net Investment Income Tax (NIIT) or Medicare Tax of 3.8% which applies to certain net investment income. This includes, but is not limited to, interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer.
Individuals must pay the surtax or Medicare Tax if they have Net Investment Income and also have modified adjusted gross income (AGI) over the following threshold:
| Filing Status | AGI Threshold Amount |
| Single | $200,000 |
| Married Filing Jointly | $250,000 |
| Married Filing Separately | $125,000 |
| Head Of Household | $200,000 |
| Qualifying Widower with Dependent Child | $250,000 |
Source: Internal Revenue Service
With the complex and ever-changing federal and state tax laws, you may feel lost while calculating your capital gain taxes. Capital gain tax calculator can help you to only a certain extent, giving you just an approximate figure of your payable tax. Connecting with a tax expert for assistance can be a greater help. You can also get tailored strategies for saving on your taxes, and maximizing capital gains tax reductions.
Monily’s accounting and tax specialists keep an eye on the holistic picture of your business and industry to ensure compliance with your taxation obligations. Besides calculating the capital gains tax you owe, we ensure that your business follows the correct tax structure and codes, is ready to file returns on time. We also ensure you get the entitled benefits from any special concessions that lead to maximum tax savings.
Farwah is the Product Owner of Monily. She has an MBA from Alliance Manchester Business School, UK. She is passionate about helping businesses overcome challenges that hamper their growth, which is why she is working at Monily to facilitate entrepreneurs to efficiently manage business finances and stay focused on growth.
