Tax Calculation on the Sale of Shares

by David Carnes

If you have realized a capital gain when you sell corporate shares for more than what you paid for them. If you sell them for less than what you paid for them, you realize a capital loss. If a foreign government levied taxes on your sale of shares, you may be able to credit them against your total tax due.

Capital Gains

The Internal Revenue Service taxes capital gains in two different ways. If you sell your shares one year or less after you bought them, it will be considered a short-term capital gain or loss, and iwll be taxed at ordinary income tax rates. If you sell them more than one year after you bought them, the IRS will classify them as long-term and apply the long-term capital gains tax, which is currently set at 15 percent for most taxpayers.

Capital Losses

If you sell your shares for less than what you paid for them, you may deduct your capital losses from your taxable income. You must first classify your losses as short-term or long-term and deduct them from your short-term and long-term capital gains, respectively. You may deduct them from all of your capital gains, not only capital gains from selling shares. You may, for example, deduct capital losses you realize from the sale of shares from capital gains you realize from selling real estate that isn't used as primary residence.

Excesss Losses

If your capital losses are greater than your capital gains, you can deduct whatever capital losses remain from your ordinary taxable income, up to a limit of $3,000 per year ($1,500 if you are married and filing separately.) If your capital losses exceed your capital gains by more than $3,000, you can carry over the excess for the following tax year, and treat them as if you had realized them that year.

The Foreign Tax Credit

If you hold shares that are within the tax jurisdiction of a foreign country, that country might withhold its own tax from your sale of shares. To avoid double taxation, the IRS allows you to credit foreign taxes paid against your total tax due by completing Form 1116 and submitting it with your income tax return (corporations use Form 1118.) However, you cannot deduct foreign taxes if you are disputing their validity with the foreign government.

About the Author

David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.

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