How to Calculate Stock Capital Gains
When tax time rolls around, it is also time to calculate stock capital gains. For IRS purposes, stock capital gains occur only when you sell a stock for a gain. If you have an unrealized capital gain, it is not yet a taxable event. Your broker can provide the necessary information to make this calculation. Capital gains are not taxable in some tax-advantaged accounts, such as 401(k)s and IRAs.
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Instructions
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Determine the sales price of the stock. You can get this information from your broker. You need to know the executed sale price from the transaction and the number of shares. Multiply the price by the number of shares and subtract the commission.
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Calculate the cost basis of the shares. This can get a little bit hairy if you have a complex transaction, but in a simple case, it is just the number of shares you purchased, multiplied by the purchase price, less commission. Note: You need to match your shares to each transaction -- for instance, if you sold 10 shares of XYZ Corporation at $50 each and bought five at $20 and five at $25, your cost basis would be 5 x $20 + 5 x $25 = $225.
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Subtract the cost basis from the net proceeds from the sale. This is the capital gain from the sale. In our example, the capital gain would be $500 - $225 = $275.
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If you held the shares for more than one year, it is considered a long-term capital gain and is taxed at a lower rate. If you held it for less than a year, it is considered a short-term capital gain and will be taxed as ordinary (earned) income.
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Tips & Warnings
Long-term capital gains are taxed at a lower rate than are short-term capital gains. For most people, long-term capital gains are taxed at 15 percent, as of the publication date. Short-term capital gains are taxed as ordinary income, so they are taxed at somewhere between 20 and 40 percent for most people.
At the end of the year, it can be advantageous to sell stocks and realize a capital gain or capital loss. This will allow you to either get a bigger refund or to reduce the amount you owe.
If you have a complex situation, it is wise to seek tax advice from an accountant regarding your stock capital gains.
