Every year, most people who earn an income are required to file tax returns with the U.S. government, estimating how much they are required to pay in taxes. The U.S. tax code is extremely complex, providing not just different income tax levels for various individuals, but a wide variety of deductions, credits and other methods of paying less. Owning stock adds another layer to this complexity. While some stockholders can do their own taxes, many people may benefit from visiting a preparer.
The U.S. government requires that people earning even a relatively small income report to the government how much money they are making and to estimate how much they owe in taxes. If a taxpayer's finances are relatively uncomplicated, she can probably do them herself. However, if she is unsure what taxes she owes on investments or what deductions she qualifies for, she may want help.
When a person buys stock, he is making an investment in the company that issued the stock. This has no direct tax ramifications, because purchasing stock does not qualify him for a tax deduction, nor does it require him to pay additional taxes. However, if the person sells the stock for a different price than he bought it, then there are tax ramifications.
Capital Gains and Losses
When a person sells a stock for more than he purchased it, she will make money. When this happens, she receives what is called a capital gain -- the difference between the purchase and sale price of the stock. As of publication, these gains are taxed at either 15 percent or at her normal income tax rate, depending on whether the stock was held for a year or less. Capital gains can be offset by capital losses -- losses incurred when selling a stock for lower than its purchase price.
While calculating capital gains and losses is relatively easy, investors, particularly those with complicated transactions, different kinds of assets or a relatively high tax burden, will often do well to consult a tax preparer or other financial planner. This tax preparer may be able to save the person a good deal of money by identifying deductions that he can claim on his returns.
- "Taxes for Dummies"; Eric Tyson; 2009
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