What Are the Taxes on Selling Stocks?
- Selling stocks results in a capital gain or loss, dependent on how much is received from the sale and the tax basis of stocks sold. If the proceeds from a stock sale exceed the basis, a gain occurred and taxes are due. If the proceeds are less than the basis, a loss occurred and no tax is due. The basis of stocks sold is the total amount paid for the stocks plus any commissions or transfer fees paid. Proceeds of the sale are the total amount received from the sale, less any expenses like commissions or transfer fees paid.
- Determine whether a gain or loss has occurred by comparing the basis of the stocks sold with the total amount received from the sale less expenses. Determine whether the gain or loss was long term (sale of stocks owned for more than one year) or short term (sale of stocks held for one year or less).
- Long term capital gains are taxed at a more favorable rate than short term capital gains. For 2009 and 2010, the long term capital gains tax rate for taxpayers in the 10 percent and 15 percent tax brackets is 0 percent. For taxpayers in the 25 percent bracket or higher, capital gains are taxed at a flat rate of 15 percent. Short term capital gains, however, are taxed at ordinary income rates, thus a taxpayer in the 28 percent bracket would pay taxes on short term capital gains at a rate of 28 percent. Any capital losses offset against gains and lowers the taxes due.
- The sale of stocks is reported on IRS Schedule D (Form 1040). Separate sections are provided for reporting short term and long term capital gains. After computing total gains or losses and any tax due the result is entered on IRS Form 1040, line 44 (or Form 1040NR, line 41). Brokers provide Form 1099-B (or an equivalent statement), which can be used to help you complete Schedule D (Form 1040).
- If you sell stock that you did not purchase but received as a gift, bonus or inheritance, different rules for computing the taxable basis exist. IRS Publication 550, Investment Income and Expenses (Including Capital Gains and Losses), should be consulted for detailed instructions on computing the taxable basis of the stocks. Your basis will usually be determined by fair market value of the previous owner's basis.