How Do I Deduct Stock Losses From My Taxes?

stock losses taxes

Capital gains and capital losses both have tax implications. When you sell stocks for a profit, you owe taxes on those gains. These taxes are calculated based on capital gains rates. However, when it comes to investments, the IRS taxes you based on your net gains for the entire year. This means that you calculate your taxes based on the total amount of profits you made after accounting for any investment losses you took during the year. You can simplify this process if you work with a financial advisor who specializes in tax planning.

How the IRS Defines Capital Gains

Capital gains are the money that you make when you sell an investment for a profit. There are three key elements here to understand. First, the capital gains are calculated as profits rather than net gains. For example, when you sell a stock your capital gains on that stock sale are calculated as the sale price of the stock minus the price you paid for the stock.

So, say you buy 10 shares of stock at $50 per share. You would pay $500 for this stock purchase.

Then, say you sell those 10 shares of stock at $60 per share. You would net $600 for this stock sale. You would profit $100 from this stock sale (the sale price of $600 less the purchase price of $500). This $100 profit is the taxable capital gain.

Second, capital gains have to be realized in order to be taxed. For tax purposes, a capital gain is realized when you complete the sale of an investment asset. Simple fluctuation in an asset’s price doesn’t trigger capital gains or losses, they simply track your potential value if you were to sell the asset today. So if your stock’s price increases in 2022, you do not owe taxes. However, if you sell that stock and receive the money from that sale in 2022, you will owe taxes in 2022.

What Are Capital Losses

Just as with income, you pay taxes on your capital gains annually. This means that you add up the profits you made from selling investments over the course of the year and pay taxes on it all in one lump sum every April 15. However, taxable capital gains are calculated as your…


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