Today’s blog will cover capital gain taxes on the sale of individual stocks in a non-retirement account. This is the tax calculation for your FEDERAL Taxes.
A capital gains tax is a tax on the profit realized, on the sale of a non-inventory asset.
The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property. Wikipedia.
First, determine your cost basis:
- If you’ve been either receiving the stock dividends or having them paid to your brokerage account to accumulate as cash, your cost basis is simply what you paid for the stock per share plus any commissions, if applicable.
- If you’ve been reinvesting your dividends to purchase additional shares of the same company, your “adjusted” cost basis will include what you paid to purchase the stock, plus the sum-total of all reinvested dividends through the years.
Second, determine whether your sale will create a short or long-term Capital Gain:
- If you’ve held the stock for 1 year or less when sold, any gain will be taxed as a short-term capital gain, which is the same rate as your ordinary or working income.
- If you’ve held the stock for over 1 year when sold, the gain will be taxed at a Long-Term Capital Gains Rate. Capital Gains Rates typically are much lower than ordinary income rates.
Third, determine your State of Residence Tax treatment of the capital gain:
- New Jersey for example, taxes capital gains the same rate as ordinary income.
! Most Important !
- Discuss the implications of the sale with your CPA or other Financial Professional prior to selling. In addition to the tax, this “additional” income may have negative implications on the taxation of your Social Security benefits and your Medicare premium levels.