You’ve made a profit from selling some stocks. Now, you want to find out how much. Don’t be too quick to bust out a piece of paper and pen. Your broker might have an online stock profit calculator available.
Now, here’s how to get started. The first step is to check how much you bought the stocks for. After identifying this price, multiply it by the number of shares you hold. This will yield your “basis.” You need to run this calculation for each transaction carried out if you bought stocks at different prices and times.
To see your total sale proceeds, multiply the price per share by the number of shares you sold. Then, calculate how much you’ve made by subtracting the basis from the overall proceeds. You’ve made a profit if the basis is lower than the proceeds. This is your capital gain.
Who Gets a Cut of Your Profit?
Of course, the government does, and not only. This is known as capital gains tax or profit tax. The basis calculation probably includes commissions or fees paid when you purchased the stock. These costs might render a trade unprofitable. They have a major effect on the profitability of your investment in every event. To see your net gain, add all the fees and commissions you paid and subtract that amount from your profit.
As market value is subject to volatility, this calculation will probably only give you a general overview of how much you’d make if you sold your stocks at a given moment.
Gain as a Percentage
To calculate gain, take the stock selling price and subtract the basis from it. This might be a negative number, which means you lost money. If this number is positive, divide it by the original investment amount. To get gain as a percentage, multiply the result by 100. This represents the investment change.
Now, you have a better idea of how the stocks you sold performed. It’s very easy to see which stocks performed better. Simply compare the percent gains of stocks that were bought and sold at the same time.
Taxes on Capital Gain
Now, let’s view the tax issue in more detail. One of two main capital gains tax types will apply: long-term or short-term tax. You have short-term capital gains if you sell stocks you’ve owned for a year or less. You realize a long-term gain if you sell stocks you’ve owned for over a year.
This second gain gets preferential tax treatment, which is only logical. The maximum tax you can expect to pay is 20%. We know that’s still a lot, but the tax on short-term gains is even higher.
You could pay 15% long-term gain tax or no tax at all, depending on your filing status and income. To avoid higher taxes, many investors decide to hold onto their stocks for at least a year.
Short-term capital gain rates are taxed as regular income. The rate depends on your tax bracket. If you’re in the highest bracket, the short-term gains tax will probably be the same as the highest income tax rate. As you may suspect, this is much higher than even the highest possible tax on long-term gains.
Using Capital Loss to Your Advantage
Investors can use capital losses to compensate for any gains from stock proceeds. Let’s say you made a profit of $1,500 from selling one stock and lost $1,000 from another. The taxable amount is now only $500.
Of course, claiming losses comes with certain limitations. One of these is what is known as the “wash sale” rule. According to this rule, you can’t declare full capital loss from a stock sale and then purchase a stock that is essentially identical within a month.
