Question about selling stocks and taxes

[Polybius]

I'll use this example to show what I know: Let's say you buy $100 in stock for a company, and it rises to $1,000. That's a $900 profit. If you sell all $1,000 worth, you pay the taxes on the profit ($900), not the initial $100. Tax rates depend if they are held for a year or more, and what your bracket is. That much I know.

Now, here's what I don't know: Is it taxed right away or manually? When the stock is sold, do the taxes automatically come out? Like if you sold the $1,000 in stock ($900 profit) you had, is $1,000 cash deposited to your brokerage account, or is it like $920 (or whatever the rate is), with taxes you owe taken out? Please let it be this way. That would make it so much easier than doing it manually and remembering everything by tax day.

[Hoyt]

1. Usually, you have option of having taxes withheld. If you say No, you'll have to pony up later.

[Polybius]

2. Oh cool!

Hopefully TD Ameritrade had this option. I'd rather pay now than later.

[spanone]

4. My broker alerts me that X money will cause a tax event.

Then he asks if I would like them to withhold it. I normally pay it when I pay my taxes.

But you can have them withhold it for you.

[Polybius]

6. TD Ameritrade has 5 tax options when I click sell, under Tax lot ID method

1) Your standing method
2) First in, first out (FIFO)
3) Last in, last out (LILO)
4) Hightest cost
5) Lowest cost
6) Tax efficient loss harvester

Which one do I choose for them to take it out immediately?

[spanone]

9. You should ask them. A quick call or an email should let you know.

I'm really not qualified to tell you.

[lastlib]

14. two things you need to know--

1) did you buy all of the (XYZ) stock at one time? (Or were there multiple buys, at different times/purchase prices?);
and 2) are you selling all of the (XYZ) holding at once? (Or multiple sales, at different times/sale prices)

If bought all at once and sold all at once, the calculation is easy--total sale minus total purchase amount (I'm excluding commissions for simplicity's sake.) The tax amount will depend on how long you held the security.

If bought at different times, sold all at once, it would be essentially the same--but you may have to separate short-term gains/losses from long-term gains/losses, depending on how long you held each purchased lot.

If bought all at once at one price and sold at different times, there is only one lot, so you don't have to identify lots; you'll just be disposing of a proportional amount of your cost at each sale--but, again, separate short-term gains/losses from long-term gains/losses.

If bought at different times, and sold at different times, then you have to identify specific tax lots sold at each sale. That can get complicated, especially if you "split" a lot--ie, sell part of the lot now, the rest later. Now here's where I'm going to actually answer your question. It's typically most beneficial from a tax stand-point to sell highest-cost long-term LOSSES first if you have them, followed by long-term gains; then short-term losses, then short term gains. This will give you the lowest effective tax burden when you file your Schedule D.

As for tax withholding, this is something you need to tell your broker at the time of the sale. This tax-calculation method only determines how the transactions will be reported to the IRS.

[calguy]

5. I've been with TD for years and have never seen this option

So you make $900 one the sale of one stock. Then the next one you lose $200. Then you make $50, then you lose $300.
It all gets figured up at the end of the year and you pay tax on the total profit minus the total losses. Not on each individual transaction.

[Polybius]

10. Hmm...

Another stupid question: If I bought $100 in stock and it went to $1,000, I'd pay nothing in taxes on it, providing that I didn't sell right? You don't pay anything on stocks held is what I was told.

[leftieNanner]

11. Correct

You only owe taxes on the gain when you sell it.

And if it's in a retirement account, you don't owe anything on any transaction until you take the cash out of the account.

[rufus dog]

3. Are you doing it on your own?

If on your own I do not know of away to pay immediately.

I have worked at companies who had stock plans where you could cover the tax liability at sell time.

Keep good records, buy price etc. I have found some of the year end statements to be a pain in the ass! (hard to find buy price)

[Polybius]

7. Yes

Through TD Ameritrade.

[rufus dog]

12. Seems like Hoyt found a way to do it

I have a Schwab account, need to log in and see if they have the option.

Is it in a 401k? If so you don't have any tax impact

[calguy]

17. If you use Turbo Tax like I do

All you have to do is click a button and it will go into your account and download all the transactions for you. Very easy and simple. I have several $$million$$ in transactions every year. It only takes a couple minutes to record it on my taxes.
Disclosure: I don't make anywhere close to millions in profits, just many millions in transactions. When you day trade many trades a day, the transaction totals are staggering.

[tinrobot]

8. Your broker will send you a tax form for the stock sale at the end of the year.

So, even if you pay taxes the day you sell the stock, you'll still have to report the sale on your 1040 next April.

[RazzleCat]

13. A lot will depend on your income

What you are speaking of is capitol gains. So what you may owe will have to do with how long you held the stock/asset and also your tax bracket (hold for at least one year to keep the tax lower). The lower your tax bracket the lower your capitol gains tax (10% - 15% bracket = 0 tax). One other item, if you hold many stocks you can offset your gains with losses.

You don't want to hear it, but wait till you do your taxes, your brokerage house/firm will send you tax documents that will notate exactly how much you gained/lost and how long you held your stock. I will stress again, wait until you do your taxes there are many variables on what your tax may be that you do not know till you have you final income for the year.


From the IRS

The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $78,750.

A capital gain rate of 15% applies if your taxable income is $78,750 or more but less than $434,550 for single; $488,850 for married filing jointly or qualifying widow(er); $461,700 for head of household, or $244,425 for married filing separately.

However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.

There are a few other exceptions where capital gains may be taxed at rates greater than 20%:

The taxable part of a gain from selling section 1202 qualified small business stock is taxed at a maximum 28% rate.
Net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate.
The portion of any unrecaptured section 1250 gain from selling section 1250 real property is taxed at a maximum 25% rate.
Note: Net short-term capital gains are subject to taxation as ordinary income at graduated tax rates.

[A HERETIC I AM]

15. There is a group on DU frequented by numerous people who can answer your question

The "Personal Finance and Investing Group".

Posting your question there can get you accurate and unbiased information.

Full disclosure; I am the host of said group and am very proud of the small, but very well informed and knowledgeable members who participate there.

Short and direct answer to your question is, You'll get a 1099 in early 2021 telling you (And the IRS) how much in Realized Capital Gains you had in 2020.

Most brokerages, online or otherwise will give you the option of preliminary withholding. You will still get a 1099 form in early February.

[ProfessorGAC]

16. I've Done It

You can tell the broker WO to withhold a %.
Long term holding pay LT cap gains.
At the time I did this, the gains at my total income were 18%, 2% for state. I'm pretty sure those numbers are right.
This was 8 years ago. I used the gains to buy a new/used ragtop.