You invest money in the stock market with the hope of making a profit. When that profit is realized, cashing out of the stock locks in your profit and protects you from a decline in the share price. Any time you sell a stock at a profit, you must consider the impact of capital gains taxes on that transaction. Depending on the transaction, Uncle Sam could demand anywhere from 15 to 35 percent of the profit on your stock transaction.
Things You'll Need
- Brokerage statements
- 1099-DIV forms
- Purchase and sale confirmations
Download a copy of your original purchase confirmation for the stock you sold. You should be able to find this purchase confirmation in the statements or accounts section of your brokerage account. Contact the brokerage account by telephone if you have trouble finding it.
Note the original purchase price of the stock, as well as any brokerage commission you paid. Your commission is added to the cost basis of the stock. Note the date on the purchase confirmation, since that date determines whether you have a long-or short-term capital gain.
Review any 1099-DIV forms you received for the stock you sold. If the stock does not pay a dividend you can skip this step. But if the stock paid dividends on which you paid taxes, those amounts should be added to the purchase price of the stock.
Compute the cost basis of the stock you sold by adding the original purchase price, the brokerage commissions you paid and any dividends on which you have already been taxed. Compute your capital gain by subtracting the cost basis from the proceeds of the sale. For instance, if you paid $3,000 for a stock and net $4,000, then your capital gain is $1,000.
Determine whether you have a short-or long-term capital gain. If you held the stock for a year or less, you have a short-term capital gain, and you pay taxes at your ordinary income tax rate. If you held the stock for more than a year, you have a long-term capital gain. As of 2011, the long-term capital gains tax tops out at 15 percent.
Record the capital gain on the stock, along with details about the stock sale, on Schedule D when you do your taxes. List each stock sale and capital gain separately, then transfer the total gain to your Form 1040.