Playing the Stock Market and Paying Taxes on it?

[Big Rush]

Can somebody give me a quick breakdown of taxes when it comes to stocks? I heard you only have to pay taxes when you sell a stock, assuming you made money on it. I also heard you only have to pay taxes if you accept a dividend instead of investing it back into the stock. Can somebody help clear these rules for me. No speculation please, only if you are 100% sure. Thanks.

[bermich]

You pay taxes on profit made.

[Da Bull]

true you pat taxes on profits made,but if over the course of the year you had more loosers than winners,and the loosing amount exceeds the winning amount you pay nothing.I strongly urge you to see a tax specialist,quite a few new laws have been passed

[bermich]

Thats what I meant. Anual profit. Once you pay taxes on that profit, you dont pay taxes on it anymore UNLESS you make MORE PROFIT.
So if you spent 10k on stocks and pulled out 50k profit, you pay on 40k. If you invest 40k in stock next year and make 60k you pay on 20k.

That is why a lot of people invest in stocks and bonds because they are tax deductable or tied up for the time being.

[Big Rush]

is it only if you sell the stock or just if your stock goes up regardless of selling it?

[chicamahomico]

You only trigger capital gain (taxable) or capital loss (tax deductable) if you sell the stock. If you receive a dividend from a stock it will be taxed as earned income (special tax rules may apply to dividend depending on what type of stock you invested in). The sole reason for investing in a non-dividend issuing stock (assuming appreciation in value) is to defer the capital gain until a later time. This effectively allows your investment to compound in a tax sheltered environment. Give buylongterm a PM on this one, I'm sure he will be able to give you more America specific tax info than I can.

[chicamahomico]

Your wording is messed up.

Thats what I meant. Anual profit. Once you pay taxes on that profit, you dont pay taxes on it anymore UNLESS you make MORE PROFIT.
So if you spent 10k on stocks and pulled out 50k profit, you pay on 40k.

If you bought for 10K and made a 50K profit...you sold for 60K. 60K (what you sold for) minus your book value (what you paid) 10K = 50K(your capital gain). You are going to pay a capital gains tax on that 50K. You will pay this tax in the calendar year you sell the stock.

If you invest 40k in stock next year and make 60k you pay on 20k.

I assume you are carrying forward the profit from the first investment (the one above). This is not quite an accurate picture because you initial profit is not 50K after it has been taxed. You have much less to work with unless you are making the assumption that all of this is occuring in a 401k or some other tax sheltered vehicle.

Not trying to be a dink, but if you don't word this crap carefully much confusion will arise.

[azstud2]

[QUOTE=chicamahomico]Your wording is messed up.


alright. first off, are you using a broker? is this mutaul fund investing? and if so what kind? ill assume its the post popular right now which is "do it yourself investing" through online brokerage firms such as scottrade for this example.when you deposit into your account, you have a balance. lets say 500 bucks. you can leave it there, and it will act as a bank account. pay taxes on interest earned, for me its .01% which sucks.if you invest it,(which was the point right?) now some may earn you dividends. you will pay taxes on those for the year also.all the money that is actually in stocks,you will not pay on. when you take the money out,is when you will. now, if you leave it in your account,and not pull it out of your stock account, you will not be taxed. when the money leaves the brokers hands,and goes to you..then he had things he has to file and report, and sends you forms to help you out at tax time.i buy and sell quite a bit.with scottrade,it works exactly how i have explained it.hope i helped.(: lates

[bermich]

Tax write offs and all that stuff cant be defined in one thread.

I tried to type it quickly without getting technical.
the 10k and pulling out 50k was assuming he already had the 10k in the bank.

The 40k making 60k was just an example showing you do not pay taxes on all 60k just because all 60k is associated with the stock.

Basically. If you already payed taxes on it and didnt do any fancy bank withdrawls or deposits, just simple stock and profit putting the profit in your bank (unlikely) you will only pay on your profit.

Next year if the same stock plummits, you show it as a loss. But there are SO MANY variables and loop holes and auditing ques.

Im sure an accountant could find a way for you NOT to pay any taxes on any of it. Just have to find a good accountant who knows ways around that crap. Im still looking

BTW. The best way to save taxes is to get audited one year and the IRS person tells you almost everything you can write off. I found out a lot after I got audited. Found out my accountant could have saved me a lot of money just on my gas reciepts.
Im done.

[chicamahomico]

alright. first off, are you using a broker? is this mutaul fund investing? and if so what kind? ill assume its the post popular right now which is "do it yourself investing" through online brokerage firms such as scottrade for this example.

I tried to keep my example as simple as possible by assuming a broker not a self directed investing account. BigRush hope some of your questions were answered but the bottom line is you should see a professional advisor in you area.