Broadly speaking, the IRS taxes two types of revenues: capital gains and income. Capital gains are gains from selling investment property or securities at a profit. Income is revenue received as a result of work, commissions, bonuses, or in the pursuit of a vocation, trade or business. To attract capital to the United States, the IRS levies a lower tax rate on capital gains than on income.
Long-Term vs. Short-Term Capital Gains
Congress discourages short-term speculation in securities by levying a higher rate on capital gains from securities held for less than a year. Gains from these securities are known as "short-term capital gains," and they are taxed at the taxpayer's highest marginal tax bracket. However, securities held for a year or longer receive the long-term capital gains tax rate, which is more favorable.
As of publication, there are only two rates in effect for long-term capital gains on most investments. For those taxpayers with a top marginal tax bracket of 15 percent or less, the tax on capital gains is 0 percent. For those with top income tax brackets of 25 percent or higher, the gains on stocks and other capital investments will be subject to a 15 percent tax.
You can figure your rates on short-term capital gains by filling out IRS Form 1040 and a Schedule D, which is a supplementary tax form designed to calculate capital gains taxes. Your capital gains tax percentage on short-term gains will be the same as your top marginal income tax bracket. Special rules apply to stock of small businesses eligible for special "empowerment zone" treatment under Section 1202 of the Internal Revenue Code, however.
2011 Income Tax Brackets
You can find the current income tax brackets in IRS Publication 15. As of publication, the IRS imposes five different tax brackets. For single taxpayers, the first $8,500 of adjusted gross income is taxed at 10 percent. Earnings up to $34,500 thereafter are taxed at 15 percent. Earnings above that number and up to $83,600 are taxed at 25 percent. Earnings between that figure and $174,400 receive a 28 percent tax. Earnings between that number and $379,150 are in the 33 percent tax bracket, while earnings above $379,150 are in the 35 percent tax bracket. If you are married filing jointly, the tax brackets are much more generous, especially in the lower brackets.