When you trade stock through a broker, you generally pay a fee on both ends of the process. Most brokers charge a fee when stock is purchased and another fee when the same stock is sold. While these purchase and sales fees are not declared on your tax return separately, they do factor into your income for tax purposes.
When you purchase a stock, it has no effect on your taxes if you don’t sell it within the same year. You cannot declare the purchase fee of the stock as loss or deduction on your tax return. Instead, you should just consider that purchase fee as part of the total stock price. This total stock price comes into play in whichever tax year you sell the shares of stock.
When you sell stock shares for profit in a given tax year, you must declare the money earned from these stock shares on your tax return. The total amount of profit earned from the stock is considered a capital gain. Capital gains are reported by filling out Schedule D of Form 1040. This income is taxable, but is taxed at a lower tax rate than income earned through your employment.
Figuring Capital Gain
To figure the capital gain of a stock sale, take the total sales price of the stock and subtract the fee that you paid to sell the stock, as well as the original purchase price of the stock, including the purchase fee. If you purchased a total of $25 in stock, for instance, and paid a $5 purchase fee, the total purchase price was $30. If you sell the stock for $50 and pay a $5 sales fee, you subtract the purchase fee to get $45 and the original $30 purchase price for a $15 gain.
If you lose money on a stock, you still get a tax credit for the purchase and sales fee. In the same way that fees figure into capital gains, they figure into capital losses. To figure the capital loss of a stock sale, take the total sales price of the stock, subtract the sales fee and subtract the original price along with the purchase fee to get the negative number that represents the loss. Declare this loss on Schedule D of Form 1040.