Tax consequences of selling stocks
Whenever you sell some stocks, you need to report the transactions on your tax returns. The tax code requires that you report the purchase price of the shares and the sell prices of the stocks. Profits generated from the sale of the stocks are reported as capital gains.
So say you purchase a stock for $100 and sell it years later for $120. On the year that the stocks are sold for $120 you have to report the transaction. In this case, you subtract the purchase price ($100) from the sell price ($120) and the difference is $20.00. The $20 is considered your capital gain on the transaction.
When it comes time to file your tax return, you add up all your gains and losses separately and then determine the amount of tax due from the net results. So say you had a total of $500 gains on your taxes and $600 in losses. In this case, you have a lost of $100 which you can use to offset your overall income. But if the numbers were reversed and you made $100.00 in overall profit than the $100 is tax based whether the gain was a short term capital gain or a long term capital gain.
Short term capital gain are gains on assets held for less than one year. While long term capital gain apply to assets held for over a one year period. Short term capital gains are taxed at your regular tax rate. While long term capital gains are taxed at a different rate. Typically its at 10 percent.