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How Selling Stocks Affects Your Taxes

CPA Long Island

Filing taxes with a standard W2 form is easy, but things can get challenging when you bring alternate sources of income, like stocks, into the equation. Selling stocks can affect your tax bill in a number of ways, whether you’ve earned a capital gain, a loss, or earned dividends on your investments.

Capital Gains Tax

When you sell your stocks, subtract what you originally bought the stock for from the price you sold it for – this is your capital gain. The capital gain is the taxable amount from each sale of stock. In essence, the government is only taxing your profits. If your capital gain is a positive number, you are responsible for paying taxes on it.

  • Short-Term Capital Gain – If you sold a stock less than a year after you purchased it, it would be taxed at the same rate as your income.
  • Long-Term Capital Gain – If you sold a stock more than a year after you bought it, it is charged at a lower rate depending on your tax bracket.

If you didn’t sell stocks during the tax year, but you did earn dividends on your stocks, bonds, index funds, or mutual funds, you do have to pay taxes on your earnings.

Capital Loss

If you sell a stock for less than you paid, this is called a capital loss. Capital losses can be claimed on your tax return to offset your taxable income. For example, if you made $60k in 2018, but experienced a capital loss of $9k, your taxable income for 2018 is now $51k. You can also use a capital loss to offset any short or long-term capital gains.

Work with a Professional Financial Advisor

Working with a professional can help prevent errors on your tax return, especially if you are adding stocks into the equation. Contact Michael J. Berger and Co. for tax preparation in Long Island, NY, today at 631.471.3400.