Short-Term Capital Gains Tax for 2022

When you earn money through investing, the amount you earn (from a tax perspective, at least) is called a "capital gain." And capital gains are taxed by the government, just like other types of income. But how much you're taxed for a capital gain will depend, in part, on how long you owned the investment, or asset. 

What is short-term capital gains tax? 

Short-term capital gains tax is the tax you're required to pay on earnings from the sale of an asset you held for one year or less. 

The tax you'll pay on your short-term capital gains depends on your income tax rate. These rates are set by the IRS based on your earned income. Remember, your capital gain will be added to your earned income to determine your income tax bracket for the year. 

You'll typically be charged the short-term capital gains tax when you sell securities, such as stocks and mutual funds that you owned for less than one year. You may also be charged the short-term capital gains tax if you earn income on the sale of real estate, vehicles, collectibles, or other assets. 

Short-term vs. long-term capital gains tax

Short-term capital gains are the profits you make from selling assets you’ve held for one year or less. Long-term capital gains are the profits you make from selling assets you’ve held for more than one year. 

The tax rates for long-term capital gains are generally lower than for short-term gains, which encourages investors to invest for the long term and rewards the inherent risks of investing. 

How does short-term capital gains tax work?

Imagine that you purchased $1,000 worth of stock in April. By December, its value has risen to $1,600 and you sell it to buy holiday gifts. You’ve made a short-term capital gain of $600. 

You’ll have to pay short-term capital gains taxes on those earnings because you held the investment for less than a year before you sold it. If you’re in the 22% tax bracket (in 2023, that's for single filers with incomes of $44,726 to $94,375), you’ll owe the IRS $132 of your $600 profit. That leaves you with a net gain of $468.

2022 short-term capital gains tax

If you sold any assets that you owned for a year or less during 2022, you'll likely owe short-term capital gains tax according to your ordinary income tax bracket. The IRS tax brackets for single filers and married filing jointly for 2022 are included in the table below. 

2023 short-term capital gains tax

The short-term capital gains tax for 2023 is also based on your income tax rate. The IRS income tax brackets for 2023 are:

How to lower or avoid short-term capital gains tax

Hold investments longer

Long-term capital gains taxes can be quite a bit lower than short-term capital gains taxes for most taxpayers. For example, long-term capital gains taxes are 0%, 15% or 20%, depending on your income. In most cases, if you hang onto your investments longer than one year, you can pay lower long-term capital gains taxes rather than higher short-term capital gains taxes. 

Harvest your losses

If you have some low-performing investments, you may be able to sell them at a loss to help cancel out your capital gain for more profitable investment sales.

Use tax-advantaged accounts

Capital gains taxes are only applied to the gains you earn through taxable brokerage accounts. Tax-advantaged accounts such as IRAs and 401(k) plans can be tax-free or tax-deferred, depending on the type of plan you have. Consider investing in tax-advantaged accounts like those available from Acorns Later to avoid paying short term capital gains taxes.