How do I Calculate Stock Profit?

by W D Adkins, Demand Media

    Maybe you started getting your feet wet in the stock market a short time ago. Now you’ve just sold some stock for a profit. Congratulations. Now you’ll want to know exactly how much profit you made. It’s about more than just feeling good. The IRS calls investment profits capital gains and you have to report them when you file your taxes. You don’t want to spoil your accomplishment by getting Uncle Sam mad at you.

    Step 1

    Calculate the total amount you paid to purchase the stock. Multiply the price paid per share by the number of shares you bought. Many online brokers do this calculation for you, so check your account before pulling out your calculator. If you bought some shares at different times and prices, figure each transaction separately and then add the separate amounts together.

    Step 2

    Figure your total investment (for tax purposes this is called the cost basis). Add all fees and broker’s commissions you paid to buy and to sell the stock to the total price paid for the stock.

    Step 3

    Multiply the sale price per share by the number of shares sold to find your total proceeds from the sale.

    Step 4

    Subtract the cost basis from the total proceeds to calculate your stock profit. Note that if the cost basis is greater than the total proceeds from selling the stock, your answer will be a negative number. This means you took a loss on the investment.

    Step 5

    Separate multiple stock transactions based on how long you owned the stock. You should do this even if it’s all stock in the same company. The reason is that profit from an investment held more than one year may qualify for lower long-term capital gains tax rates, while short-term investment profits (you owned the stock less than a year) do not.

    Tip

    • You may want to convert stock profits to a percentage. Doing this makes it easy to compare how well investments of different size and type have performed. To convert to percentage gain, divide the profit by the cost basis and multiply by 100. For example, suppose your cost basis was $5,000 and your profit $700. ($700/$5,000) * 100 = 14 percent. If a second investment works out to a 10 percent gain, you know at a glance the first investment performed better.

    About the Author

    W D Adkins has been writing professionally for two years. His writing interests include education, business and finance. Adkins is a doctoral student with Masters Degrees in history and sociology from Georgia State University. He is also a member of the Society of Professional Journalists.