The IRS assesses capital gains on both short- and long-term holdings. Short-term capital gains are taxed on assets sold within a single year of ownership, whereas long-term gains are taxed on assets sold after more than a year of ownership.

Short-term capital gains are treated as ordinary income, which means you could face taxation of up to 37% depending on your tax bracket. Long-term gains, on the other hand, are taxed at a rate of 0%, 15%, or 20%. The rate is determined by your AGI and filing status.

Holding a stock long-term offers significant tax benefits, primarily through capital gains tax advantages. In many countries, selling a stock after more than a year qualifies for the long-term capital gains tax rate, which is typically lower than short-term rates. For example, in the U.S., long-term capital gains tax ranges from 0% to 20%, while short-term gains (stocks held for less than a year) are taxed as ordinary income (up to 37%).

Additionally, long-term investors can benefit from dividend tax advantages if the stock pays qualified dividends, which are taxed at lower rates. Holding stocks longer also allows for tax deferral, meaning you only owe taxes when you sell, giving investments more time to grow tax-free.