The exhilaration of a profitable stock sale must inevitably give way to the mundane task of calculating your tax bill. If you sustain a loss, you can use it to reduce your taxes. In either case, you must first identify the adjusted cost basis of the sold shares, figure your gain or loss and then apply the correct capital gains tax rate, which depends on how long you held the shares and your regular tax bracket.
Adjusted Cost Basis
Start your tax calculation by identifying the sold shares' tax lots. Each lot is a separate purchase transaction, specified by the date bought, the price paid and any fees or commissions. You can cherry-pick tax lots or use them in first-in, first out order. Depending on the number of shares you sell, you may have to use a partial tax lot. The adjusted cost basis is the total amount you paid for the shares you sold, including fees. For example, your oldest lot might be 100 shares purchased at $30 per share, plus a $5 commission. Your adjusted cost basis is (100 x $30) + $5, or $3,005, which is $30.05 per share. You also need to adjust the share price for stock splits and stock dividends.
Profit or Loss
To calculate profit or loss, enter the cost basis and sales information on Internal Revenue Service Form 8949. The sales information includes the date sold, the sale proceeds and any adjustments such as commissions. Your capital gain or loss is the difference between adjusted cost basis and adjusted sales proceeds. For example, if you sell your 100 shares for $34 each and pay a $5 commission, your gain is ((100 x $34) - $5) - $3,005, or $390.
If you sell shares held for one year or less, enter the information on Part I of Form 8949, in which you report short-term capital gains or losses. The tax rate on short-term capital gains is your regular income tax rate. For example, if your regular tax rate is 25 percent, the tax rate on a $390 short-term capital gain is (0.25 x $390), or $97.50. Enter shares held for longer than one year on Part II, the long-term capital gains section. If you sell shares purchased on several dates, you may have to separate the sale into short-term and long-term portions.
Long-Term Capital Gains
As of 2013, the tax rate on long-term capital gains is 15 percent if your regular tax bracket ranges from 25 percent to 35 percent. If you are in a higher bracket, your long-term capital gains rate is 20 percent. If your regular bracket is lower than 25 percent, your long-term capital gains are tax-free. For example, if you are in the 25 percent bracket, your tax on a $390 long-term capital gain is 15 percent, or $58.50. You can use capital losses to offset capital gains and up to $3,000 of regular income. You can carry forward unused capital losses to offset taxes in future years.
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