How to Avoid 20% Tax Selling Stock

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Whether your start-up company turned into a gem or you've done well with swing trading, you have to pay taxes on your gains at some point. The gains we make in the stock market are taxed as well. The tax amount depends on the length of time the stock was held. Fortunately, it's possible to lower the 20% tax rate and make it more manageable.

Things You'll Need

  • Stock gain/loss statement
  • Hold on to the stock. This is one of the best ways to reduce the amount of taxes you have to pay. Hold the stock for at least a year and you'll only have to pay a maximum tax of 15%.

  • Sell the stock for a loss and you won't have to pay taxes on it. If your total losses equal $3,000 or more, you can deduct this amount from your federal income tax.

  • Combine short-term and long-term stocks. The former are held for less than a year and can be taxed as high as 35%, while long-term stocks are taxed at a maximum of 15%. If you yielded a gain from your long-term stocks and a loss from your short-term shares, you only need to pay taxes on the long-term stocks.

  • Study market trends. Buy stocks that have reached their 52-week lows and still show room for improvement. This allows time for your stock to grow so you don't have to sell it early on. The longer you hold on to it, the lower your taxes will be.

  • See an accountant if you have any questions about your taxes. He or she may be able to reduce the amount you owe.

Tips & Warnings

  • Contact your stock broker for more information or if you have questions.

References

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