If you’ve recently been thinking about increasing your wealth by exploring the stock market, then you’ll know that there are a lot of things to consider before you get started. You’ll need to decide whether you’re going to get started with something small, or whether you’re informed enough that you’re ready to look into things like how to trade penny stocks, and what day trading means. One of the most important things to remember before you jump into your new daily activity is that there are tax consequences to making money from shares and securities.
Having the right accountant on hand to help you will ensure that you know how to prep your tax returns properly at the end of each year and avoid any issues.
Understanding Stock Taxes
Unqualified stock investment accounts (those outside of the Roth IRA landscape), will have a selection of two basic taxes to think about. If your securities pay dividends, then you’ll be responsible for paying income tax on those payments. Usually, the tax on this amount will be 15% however this can change depending on various circumstances, which is why it’s always helpful to have professional guidance. Another point you need to think about is the taxes associated when you sell a security for a loss, or a profit. If you hold onto this security for more than one year, any gain you receive will be taxed at a long-term capital rate. This rate is also at 15%, but once again it’s generally subject to change.
If you sell a stock for a larger amount, and you’ve held onto it for less than 12 months, you will need to pay a regular amount of income tax on whatever you gain. The amount you pay here will be dependent on the tax bracket that you fall into. This is sometimes significantly higher than fifteen percent. That’s why it’s worth checking with your advisor which option might be best for you.
What Happens if You Lose Money?
In the stocks and securities market, it’s important to remember that the amount of cash your shares are worth won’t always go up. There will be changes in the landscape from time to time that cause you to lose money too. If you sell for a loss, then you will also have tax considerations to think about. In some cases, you might be able to claim something called a short- or long-term loss of capital. Essentially, this helps to offset the amount of tax you pay on capital gains.
It’s valuable to think about the consequences of your investments in the stocks space, whether you’re making money right now or losing it. In some cases, you’ll find that the more you can place your wealth into the right qualified account for retirement, the better off you’ll be from a taxation perspective. Just remember, in many cases, the taxes associated with stocks are only going to be one piece of the full payment situation that you need to address each year. If you’re not sure how much you should be spending and claiming, then speaking to an advisor will help.