Theres a lot to consider when selling stocks, including your tax bill.
People sell stocks for numerous reasons.
(Different rules apply when selling stocks inside a retirement account.)
Did you know you caninvest for retirementwith your health savings account? You won’t owe taxes when you sell assets within your HSA until you withdraw the money.
Before you hit that trade button, double-check you understand what happens when you sell a stock.
Heres everything you should probably know.
Know When to Sell a Stock
Theres no perfect time to sell a stock.
The best time to sell depends on your personal investment strategy,risk toleranceand time horizon.
Probably not as good as youd like.
It always seems like an uphill battle to build (and keep) a decent amount in savings.
But what if your car breaks down, or you have a sudden medical bill?
Ask one of these companies to help…
For most investors, holding stocks long-term is the best strategy.
Avoid selling on impulse and during stock market downturns.
As they say: Time in the market beats timing the market.
Still, sometimes it makes sense to sell.
Picking the right order pop in can help you maximize returns and minimize losses.
Limit Order
This pop in of order will only sell a stock at a specific price.
An example: A stock is currently worth $75.
You put a sell limit order on it for $80.
The stock wont sell unless it hits $80 or better.
When the stop price is reached, a stop order becomes a market order.
it’s possible for you to use this throw in of order to limit your losses.
How Does Selling Stocks Impact Your Taxes?
When tax time rolls around, youll need to report those capital gains on your tax return.
How much you owe depends on how long you hold the stock and your income level.
If you sell stock at a loss within a taxable brokerage account, you wont owe taxes.
In fact, selling stocks at a loss can actually help lower your tax bill.
Youre taxed on the capital gain ($500), not the sale price ($2,000).
How much you owe in taxes depends on how long you owned the stock.
Capital gains taxes arent limited to stock sales.
They impact the sale of nearly all investment assets, includingexchange traded funds(ETFs),mutual fundsandcryptocurrency.
2022 Long-Term Capital Gains Tax Rates
Use when filing your taxes in 2023.
Short-term capital gains are taxed at ordinary income tax rates.
Lets say you make $40,000 a year.
Holding long-term is especially advantageous for high income earners.
Lets say you make $300,000 a year.
If you sell a stock for less than what you paid for it, you experience a capital loss.
A capital loss can be a good thing in the right situation.
It can offset capital gains, limit your tax liability and even reduce your taxable income.
The rule prohibits selling a security at a loss and then rebuying that same security within 30 days.
The rule doesnt prohibit the sale itself.
You just wont be able to claim the loss for tax purposes.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
No Interest Til Almost 2027?
Balance Transfer = Credit Card Cheat Code
