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  • Writer's pictureInvested Millennial

Tax Implications of Buying and Selling Stocks

Tax season is around the corner. If you sold some of your investments in 2020, keep reading this post to ensure you understand the implications of selling stocks and what that means in terms of taxes.

The main thing you need to keep in mind when selling stocks at a profit is the duration of your investment before selling. If you sold a stock or position in less than a year, you will be taxed at a different rate than if you sold your investment after holding it in your portfolio for a minimum of one year.

This is important to know because it determines how much you will end up owing in taxes once you file all of your paperwork. Make sure you understand the following capital gains definitions below.

Short-Term Capital Gain: A short-term gain is a profit realized from the sale, transfer, or other disposition of personal or investment property known as a capital asset that has been held for one year or less. A short-term capital gain occurs when an investment is sold that's been held for less than one year such as a stock. The gain is taxed as ordinary income, which is your income tax rate.

Long-Term Capital Gain: Long-term capital gains are derived from assets that are held for more than one year before they are disposed of. Long-term capital gains are taxed according to graduated thresholds for taxable income at 0%, 15%, or 20%.

If you invested in the stock market in 2020, your broker will send you FORM 1099-B in January which will outline all of your buy/sell activity for the previous year. This form will contain information about your total gains and losses.

Before you file your taxes I encourage you to meet with your local tax advisor or CPA so both of you can determine the net capital gains that will be subject to taxation to ensure the accuracy of your 2020 tax filing.

Since I am not a tax advisor, I cannot provide advice or in-depth information about taxes. However, I encourage you to look through some of the resources below so you can start getting familiar with capital gains taxes for this upcoming filing season.

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