You've invested your hard-earned money in a stock, so seeing it go up in value can make you smile. But if the stock it isn't held in a tax-deferred account like an IRA and you sell shares now, you'll likely have to pay taxes on the transaction. The IRS calls profit on tax investments "capital gains" and requires you to report how much you've made. Learning the right way to calculate your stock gains means you won’t end up paying Uncle Sam more than necessary -- and that's bound to keep you smiling, even at tax time.
Keep complete records of every stock transaction, no matter how small. Include all fees and commissions paid when purchasing or selling shares of stock.
Figure out your investment cost. Total up the purchase price of your stock shares, fees and commissions. For example, if you bought 100 shares of XYZ Company at $10 per share and paid a $20 commission, your investment cost is $1,020.
Compute your total investment cost if you bought shares of the same stock at different times. Figure the investment cost of each transaction, then add them up.
Figure your cost basis. Cost basis is your total investment cost, plus any fees and commissions you paid when selling the shares. For example, if your total investment for 100 shares of XYZ stock is $1,020 and you paid $25 to sell the stock, your cost basis is $1,045.
Choose the shares you want to sell if you are liquidating only part of your investment. Unless you specify which shares you are selling, the IRS assumes the first shares you bought are the first ones you sold. Before you sell the stock, tell your broker which shares to sell and ask for confirmation in writing.
Figure your gain by subtracting your cost basis from the proceeds you received when selling the stock. If you sold 100 shares of XYZ stock at $20 per share, your proceeds are $2,000. Subtracting your $1,045 cost basis leaves a gain of $955.
Items you will need
- Stock transaction records
- If your cost basis in a stock is more than your proceeds when selling, doing the math will yield a negative number. That means you had a net loss.
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