Shares of publicly traded stock are a very liquid investment, and it is not difficult to turn shares into cash. There is not a required holding period for stocks or any penalties for selling them. However, the price you receive may be significantly more or less than the original cost of the shares, and you could face a tax penalty depending on the situation.
Share Prices Set on the Stock Exchanges
Stocks are listed and trade on the various stock exchanges. These markets are open Monday through Friday. During market hours, investors and traders submit buy and sell orders, which are matched up at the share prices in effect at the time the orders are filled. Individual share prices move up and down during the day, and over days, weeks and years share prices change by a significant amount. What a share is worth right now is the current trading price.
Brokers Charge to Buy or Sell
Sell your stock shares using a registered broker and a brokerage account. The broker charges a commission each time you give an order to buy or sell shares. With an online brokerage account, you enter you orders through the broker's online account system, and the commission for most brokers falls in the $5 to $10 range, as of publication. To use a live broker, the commission rate depends on the number and value of shares you sell. Live broker commissions start at about $50, at time of publication, and can reach several hundred dollars if you are selling a lot of stock.
The IRS Wants Its Cut
Selling stock produces a tax-reportable event. If you sell shares for more than your cost basis, you will be taxed on the difference between the selling value and the cost. If you owned the shares for longer than one year, the gain will be taxed at a lower long-term capital gains tax rate. Short-term gains are taxed at your regular, marginal tax rate. If you sell shares for a loss, the loss can be used to offset taxable gains or even as a deduction against your other income. Up to $3,000 can be used in a year against non-capital gains income.
Retirement Accounts May Have Separate Penalties
If you own stock shares in a qualified retirement account, such as a 401(k) plan or individual retirement account, you can incur taxes and tax penalties if you sell shares and withdraw the cash. Up to 100 percent of a retirement account withdrawal could be classified as taxable income. Also, if you make withdrawals before age 59 1/2, there will be an additional 10 percent tax penalty on the withdrawal amounts. The tax and penalties apply to any account deposits, gains or earnings that have not been previously taxed.
How Long to Get Your Cash
The stock market uses a three-day settlement period. This means, when you sell your shares, the cash will not be available in your brokerage account until the third day after the sale. You will receive the price per share in effect at the time the sale order was sent to the stock exchange. Once the cash is in your brokerage account, it can be wired the same or next day to your regular bank account.
- Photo Credit Andrew Burton/Getty Images News/Getty Images
Tax Penalties for Cashing Out Stock
As an investor, you need to build a widely diversified portfolio that includes stocks, bonds and fixed income assets. You also need...
Tax Penalties on Cashing in Annuities
Tax Penalties on Cashing in Annuities. In formal tax code, the IRS says that cashing in annuities falls under the category of...
Tax Laws for Cashing Stocks
If you casually buy and sell stocks it is important to consider the tax implications of these transactions, since taxes can cut...
How to Report Employee Stock Options Sold on a W2
Employee stock options can be a useful form of compensation that allow an employee to directly benefit from a successful company's rising...
Penalties for Cashing in Mutual Funds
Penalties for Cashing in Mutual Funds. It is a simple process to cash in a regular mutual fund account. You can call...
How to Cash in a Stock Certificate
Stock certificates are not worth very much money, and taxes must be paid on them once they are cashed in. Find out...
What Is the Penalty for Early Withdrawal on Mutual Funds?
While there is no universal penalty for an early withdrawal from a mutual fund, there are circumstances wherein a mutual fund withdrawal...
Penalties for Cashing in a Savings Bond Early
Penalties for Cashing in a Savings Bond Early. U.S. savings bonds are considered a safe and low-risk option for long-term savings, and...
Cashing Out Stocks
When you trade stocks, the goal is to buy low and sell high. So if you have some stocks with sizable gains...