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How are stocks taxed?

When you own stocks outside of tax-sheltered retirement accounts such as IRAs or 401(k)s, there are two ways you might get hit with a tax bill. If your stock pays a dividend, those dividends generally are taxed at a rate of up to 15% at the end of each year.

In addition, if you sell a stock, you pay 15% of any profits you made over the time you held the stock. Those profits are known as capital gains, and the tax is called the capital gains tax. One exception: If you hold a stock for less than a year before you sell it, you'll have to pay your regular income tax rate on the gain - a rate that's higher than the capital gains tax.

If you own stock mutual funds, you're on the hook for taxes on those as well.

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