Have you ever run across the phrase “long-term gains” or “short-term losses” and never knew what people were talking about? Turns out they are not talking about investment strategies. Instead they are discussing a very important part of the United States tax code. The IRS taxes differently depending on if the gains are long term or short term. To discover if your gains are long or short-termed you need to identify the holding period. The holding period is the amount of time you held some security before you sold it. That means that a short-term gain or a short-term loss is a gain or loss on a capital asset that had a 12-month or less holding period. This also means that a long-term gain or long term loss is a gain or loss on a capital asset with a longer holding period than twelve months.

Just in case you aren’t familiar with stock options I can explain them for you. A stock option is a contract between a buyer and a seller. If it expires it is worthless. The option is always connected to a listed stock, an exchange index, futures contracts, or real estate. Every stock option is designed by its strike price and expiration date. You also have to know the name that is associated with the stock and most importantly, the premium paid for the option plus the broker’s commission to know what you are dealing with. Really knowing your stock options are essential in understanding your potential for riches.