# Calculations of Stock Long-Term Taxes

When you invest in a stock, be sure to keep complete records. You eventually must report stock gains as income or you will want to deduct any losses from your taxable income. You do not report gains or losses as long as you own the shares, but you must report them on your income tax return for the year in which the shares are sold. Don’t include dividends you receive when you report long-term taxes on stock. Dividends are considered ordinary income and reported as such in the year the dividends are received. Long-term taxes apply only to gain or loss in the value of the shares.

1. Compute your capital gain or loss for a stock transaction. First, add transaction costs for the purchase and sale of the shares to the price paid for the stock to find the cost basis. Subtract the cost basis from the proceeds of the sale to find your capital gain. If the cost basis is greater than the proceeds, the answer will be negative and you have a capital loss.

2. Repeat Step 1 for each sale of stock you made during the year. Do the same for any other sale of property that is considered a capital gain or loss by the IRS, such as a sale of real estate or bonds.

3. Sort all of your sales transactions into four categories: long-term capital gains, short-term capital gains, long-term capital losses and short-term capital losses. An investment is long-term if you held the shares or other property for more than one year. Add up the amounts to find the total for each category.

4. Subtract long-term capital losses from long-term capital gains. Then subtract any short-term capital losses. If your answer is positive, you have a net long-term capital gain for the year. A negative answer means a net long-term capital loss.

5. Multiply a net long-term capital gain by the applicable capital gains tax rate to find the amount of income tax due. If your marginal tax rate is more than 15 percent, your long-term capital gains tax rate is 15 percent. If your marginal tax rate is 15 percent or less, the long-term capital gains tax rate is zero. The marginal tax rate is the highest percentage of income tax you pay on ordinary income.

6. Deduct up to \$3,000 of any net long-term capital loss for the year from your other income. If you had a net long-term capital loss of more than \$3,000, you may use the amount in excess of \$3,000 to offset income on future tax returns, but not in the current year.

#### Tip

• When you file your tax return, you use Schedule D, Form 1040, to report capital gains and losses. The information from Schedule D is entered on line 13 of your Form 1040.