Buying and selling a stock can be
as complex as the market itself. Questions like "What shares to sell?" and "When to sell?" can confuse even the savviest seller at times. This confusion could take a bite out of your profits when tax time rolls
around. Here are some general rules to remember:
Timing is everything. Gains and losses on the sale of stock are categorized as having either long or short-term gains. Short-term gains are held for a year or less,
long-term for more than a year. This is important to remember when selling a stock because short-term gains are taxed as ordinary income, which could be as high as 39.6 percent. Long-term gains are taxed at a maximum of 20 percent.
This is why it is so important to save purchase and sale confirmations, which show the date, price and expenses. Without this, it may be impossible to determine your basis (or cost of the stock), and your holding period.
Since gains and losses are netted against one another before taxes, even your "loser stocks" can serve a purpose. Look to sell your "losers" since they may offset gains from your other sales. Be
careful not to run afoul of "wash sale" rules though. A wash sale occurs when you sell a stock or security at a loss and within 30 days buy a substantially similar stock or security. Losses from wash sales are not deductible. Any
gains, however, are taxable.
Since buying or selling a security will usually result in a gain or loss that lowers or increases your adjusted gross income, you will be required to file a Schedule D. When filing, keep
in mind that:
