How To Pay Taxes On Stock Sales

Stocks are referred to as shares in the ownership of a company

. Companies sell shares in order to get additional funds for growth and rejuvenation. The money is usually for helping the company meet its goals, such as expansion. When you buy shares you are issued with a stock certificate. This certificate is proof that you have a stake in a given company making you a shareholder. However, this does not entitle you to take part in the daily running of the company. You only get to attend annual shareholder meetings where you vote for the board of directors. You benefit from shares when the company gains profit which are paid out as dividends. In addition, you also benefit when the price of the shares go up and you sell off yours at a profit.

Stock trades are taxed as capital gains and not as regular income. However, you can only pay taxes for those that you have already sold. You do not get taxed for buying and owning them. After you make as sale, you have to first check if the sale resulted in profit or loss. This will determine the amount of money that you will get taxed. Not all taxes apply for stocks; Medicare taxes are not applicable. Holding stock for a long period is advised. This is because, you will be taxed less as they are considered as long term capital gains.

Those held for shorter periods are considered short term capital gains. They are usually sold in less than a year and attract higher taxes. They are taxed at the same rate as your regular income which is higher, and depends on your income bracket. For you to be taxed, information about how much you bought your shares for and the money you spent on all fees and commissions needs to be availed. This helps in determining your tax basis.

Stocks that one acquires through inheritance or as a gift are also taxed. The tax basis for gifts depends on the amount of money paid by the original owner. However, those acquired through inheritance are taxed depending on their value the day your benefactor died. In addition, it is important to note that, investors are prohibited from selling stocks whose price is depreciating to offset gains. You cannot sell and then buy back within thirty days. Dividends are also taxed. They are however taxed as ordinary income.

How To Pay Taxes On Stock Sales

By: Peter Gitundu

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