Let’s say you buy $ 5,000 worth of Apple stocks in May 2019. On December 2019, you decide to sell it for $ 5,500.
As a result, you’ve made short-term capital gains of $500.
Let’s now assume you make $ 38,701 to $ 82,500 a year, which puts you in the 22% tax bracket. This means you have to give the IRS $ 110 of your $ 500 capital gains.
Which leaves you with $ 390 of your earnings.
However, let’s say you hold on to the same Apple stock until June 2020 (13 months later), at which point let’s assume the stock price remains the same (for purposes of this example). You then decide to sell the stock for $ 5,500.
Resulting in a “long-term” capital gain of $500.
Assuming you make $38,701 to $ 82,500 a year (same income as before), your $ 500 gain is now taxed at 15% bracket (instead of 22%!)
So instead of paying $110, you’ll only pay $ 75.