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% (20% for high earners) at the end of each year.
In addition, if you sell a stock, you pay 15% (20% for high earners) 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.
