Question:

Paying taxes after selling stocks?

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SO how do one pay taxes when selling the stock after capital gain? DOes the brokerage send you the tax form and then you have to fill it? Can you explain me how does it work? is it hard?

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  1. You will receive something called a 1099B or a final end of year statement from your brokerage which will show 1099B information.  Keep this information with all of your tax stuff and bring it to your tax preparer when you are ready to do your return.  Your end of statement should show the following items:  Cost basis, sale date, acquisition date, number of shares, and sale price.  Be sure these items are there....if not, contact your brokerage for the information.  Often cost basis is missing and if your tax pro does not have that information he/she cannot file an accurate return for you.


  2. Depending on who your brokerage is, they should keep track of purchase and sale transactions and realized gains and losses, both short and long term (which are taxed differently).  If they don't track it, you need to, and can do so by going through your account history.  Taxes on gains will be figured after the end of the year, when you prepare your tax returns.  That is why many people sell stocks that are down in December, to balance out gains with losses.  That way they can avoid taxes.  So if you have gains now, you don't really need to worry about them until the end of the year... but you can use the rest of the year to come up with whatever is the best tax strategy for yourself.

  3. When you open the account, the brokerage asks you for your name and SSN.

    When you sell the stock, they make note of that fact.

    At the end of the year, they send you a 1099-B that shows the sale.  The 1099-B is issued in the name/ssn you supplied earlier.

    When you file your taxes, your report the sale on form 1040 schedule D.  YOU report your cost basis (many brokerage houses keep the information for you and show it on their end of year statement).  The difference is your gain/loss.  Your entire income (wages, gains, etc) determines your tax bill.

    The one thing that the above doesn't cover is that *you* are supposed to estimate your tax liability and have *enough* money either withheld on your paycheck (controlled by your W-4 and yes, you can go in and ask that $100 a pay period be added) or mailed in voluntarily by you (estimated tax payments) so that you either still get a refund or have a balance due of a modest amount.

    If you have a large gain at the end of the year (as in, too late to tweak your W-4), your goal is to mail the last estimated tax payment by 1/15 of the following year.  Sometimes you have to do a form 2210 to show that you didn't owe extra money until the end of the year to avoid an estimated tax penalty.

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