What is the tax treatment of a stock that is not held for more than a year before selling?

The tax treatment of a stock held for one year or less before being sold classifies it as short-term capital gains. Short-term capital gains are realized on assets purchased and sold within a year and are taxed at the individual's ordinary income tax rates. This is significant because the tax consequences tend to be more favorable for long-term capital gains, which apply to assets held for more than one year, resulting in lower tax rates.

Short-term capital gains include any gain recognized from the sale of the stock during that short holding period and are combined with other forms of ordinary income, such as wages or salaries, on the taxpayer's tax return. Understanding this classification helps taxpayers effectively plan for their tax liabilities based on their investment strategies.