Every time you sell a share (stock), you are required to pay taxes on it. The amount of tax you need to pay depends on the amount of capital gains and your personal tax rate (tax bracket). It also depends on how long you kept the stock before selling it. You do not have to pay taxes on stock sales that resulted in loss. Those in lower income tax brackets pay fewer stock taxes than those with higher income.
1. Figure out your capital gains on the stock sale. Subtract the amount of money you earned from the sale from the amount you originally paid for the shares, including dividends, and fees or commissions. Subtract any fees or commissions from your sale to get the final number.
2. Find out if the stocks you sold were held long-term or short-term. Short-term stocks are those that were sold less than a year after they were bought. Long-term stocks are those that you held onto for longer than 12 months before selling them.
3. Find your personal tax rate, which is based on your annual income and determined by the IRS. This rate is used to determine the taxes due on short-term shares.
4. Multiply your personal tax rate by your share gains if your shares were held short-term. For example, if your tax bracket is 28 percent and your share gains were $2,000, your formula would look like this: 0.28 x $2,000 = $560.
5. Multiply your share gains by 15 percent if your shares were held long-term and your personal tax rate is at least 25 percent or higher. For example, if your gains were $2,000 and your tax rate is 35 percent, your formula would look like this: 0.15 x $2,000 = $300. You do not need to pay taxes on long-term stocks if your tax rate is 15 percent or less.
6. Report the stock sales on IRS Form 1040, line 44.
- Minors, or those under the age of 24 (if students), may have to pay stock taxes at their parents' tax rates.
Items you will need
- Share statements
- Tax rate tables
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