To calculate the gains or losses on a stock investment, one must first know the cost basis, which is the purchase price initially paid for the stock. Investors who neglected to record this information may find it on the order execution confirmation form or the brokerage account statement from the date of the purchase.
Once investors learn the purchase price, they must next consider the stock's selling price, which may likewise be sourced from the same documents.
Key Takeaways
- Calculating the gains or losses on a stock investment involves a straightforward process.
- The process involves determining the cost basis, which is the purchase price initially paid for the stock, and recognizing the selling price.
- Investors then calculate the difference between the purchase price and the sale price to determine the gains or losses per share.
- Finally, investors multiply gains or losses per share by the number of shares.
Purchase vs. Sale Price
The difference between the purchase price and the sale price represents the gain or loss per share. Multiplying this value by the number of shares yields the total dollar amount of the transaction. Investors who wish to determine a more accurate number may also factor in any brokerage commission fees related to the purchase or sale of the stock.
Investors must then consider the tax consequences of the investment, which kicks in if the stock was housed in a non-retirement account. Under the current U.S. tax code, if investors hold the stock for less than one year, the capital gain/loss will be deemed short term and will consequently be calculated as ordinary income for tax purposes. But if a profitable stock is held for more than one year, it will be subject to a standard capital gains tax of 15%.
If a stock splits, investors must adjust their cost price accordingly. For example, if the stock purchase price was $25, and it splits 2 for 1, the cost basis would be adjusted to $12.50 per share.
Consider the following scenario. Suppose you buy 100 shares of XYZ stock on Aug. 1, 2021, for $20 a share. Let's further assume you sell 50 shares of this stock on Sept. 1, 2022, for $25 a share. On a per-share basis, the long-term gain would be $5 per share. Multiplying this value by 50 shares yields $250. Then, if you multiply that number by the 15% capital gains, it yields $37.50, which would be the tax consequences for this transaction.
Tom Cymer, CFP®, CRPC®, CFA
Opulen Financial Group, LLC, Arlington, Va.
The first step in calculating gains or losses is to determine the cost basis of the stock, which is the price paid, plus any associated commissions or fees.
For example, assume you bought 10 shares of XYZ stock at $100 a share, for $1,000, and paid a $50 commission to your broker. In this case, the total cost basis is $1,050. Dividing $1,050 by 10 (the number of shares owned) equals the cost basis per share.
Next, you must adjust your basis for any stock dividends that were reinvested. Let's assume your stock paid $100 in dividends, which you then paid tax on via Form 1099-DIV. You can now adjust your basis upwards: $1,050 + $100 = new basis of $1,150. The difference in proceeds from the sale will be your gain or loss.
FAQs
In order to figure out the gain or loss, you need your purchase and sale price for the stock. Subtract the purchase price from the sale price. A positive result means you have a capital gain while a negative result means you have a loss.
How do I calculate my gains and losses when I sell a stock? ›
In order to figure out the gain or loss, you need your purchase and sale price for the stock. Subtract the purchase price from the sale price. A positive result means you have a capital gain while a negative result means you have a loss.
How to calculate profits or losses and expenses in selling stock? ›
Determining Percentage Gain or Loss
- Take the selling price and subtract the initial purchase price. ...
- Take the gain or loss from the investment and divide it by the original amount or purchase price of the investment.
- Finally, multiply the result by 100 to arrive at the percentage change in the investment.
To calculate your tax liability for selling stock, first determine your profit. If you held the stock for less than a year, multiply by your marginal tax rate. If you held it for more than a year, multiply by the capital gains rate percentage in the table above.
How do you calculate capital gains on stocks sold? ›
The process involves determining the cost basis, which is the purchase price initially paid for the stock, and recognizing the selling price. Investors then calculate the difference between the purchase price and the sale price to determine the gains or losses per share.
What is the formula for gain or loss on sale? ›
The original purchase price of the asset, minus all accumulated depreciation and any accumulated impairment charges, is the carrying value of the asset. Subtract this carrying amount from the sale price of the asset. If the remainder is positive, it is a gain. If the remainder is negative, it is a loss.
How much stock loss can you write off? ›
You can then deduct $3,000 of your losses against your income each year, although the limit is $1,500 if you're married and filing separate tax returns. If your capital losses are even greater than the $3,000 limit, you can claim the additional losses in the future.
How do I calculate my profit and loss? ›
Every business needs to know how to figure out its profit and loss. Business owners can figure out if they are making a profit or a loss by using the formula: total revenue minus total costs = profit or loss. To make sure the business is profitable, it is important to keep track of all expenses and income.
How are profit and loss both calculated with respect to the selling price? ›
Answer– The formula for Profit is S.P. – C.P. If the selling price is lesser than the cost price, whatever difference you get between the two is the loss suffered. Similarly, Loss is C.P. – S.P. Always remember that you calculate profit or loss on the cost price.
What is the formula for calculating profit? ›
Formulas to Calculate Profit
| Formula for Profit | Profit = S.P – C.P. |
|---|
| Gross Profit Formula | Gross Profit = Revenue – Cost of Goods Sold |
| Profit Margin Formula | Profit Margin = T o t a l I n c o m e N e t S a l e s × 100 |
| Gross Profit Margin Formula | Gross Profit Margin = G r o s s P r o f i t N e t S a l e s × 100 |
1 more rowThis means right now, the law doesn't allow for any exemptions based on your age. Whether you're 65 or 95, seniors must pay capital gains tax where it's due.
Do you pay taxes immediately after selling stock? ›
Do I Have to Pay Capital Gains Taxes Immediately? In most cases, you must pay the capital gains tax after you sell an asset. It may become fully due in the subsequent year tax return. In some cases, the IRS may require quarterly estimated tax payments.
Do I pay taxes if I sell stocks at a loss? ›
How tax-loss harvesting works. Tax-loss harvesting helps investors reduce taxes by offsetting the amount they have to claim as capital gains or income. Basically, you “harvest” investments to sell at a loss, then use that loss to lower or even eliminate the taxes you have to pay on gains you made during the year.
What is the easiest way to calculate capital gains? ›
Your taxable capital gain is generally equal to the value that you receive when you sell or exchange a capital asset minus your "basis" in the asset. Your basis is generally what you paid for the asset. Sometimes this is an easy calculation – if you paid $10 for stock and sold it for $100, your capital gain is $90.
What is the formula for capital gains yield of a stock? ›
Calculating a capital gains yield is very simple. You subtract the original price of a stock from the current price of a stock and divide the sum by the original price.
Do I have to pay capital gains tax immediately? ›
This tax is applied to the profit, or capital gain, made from selling assets like stocks, bonds, property and precious metals. It is generally paid when your taxes are filed for the given tax year, not immediately upon selling an asset.
Do I get a tax break if I sell stock at a loss? ›
Tax-loss harvesting helps investors reduce taxes by offsetting the amount they have to claim as capital gains or income. Basically, you “harvest” investments to sell at a loss, then use that loss to lower or even eliminate the taxes you have to pay on gains you made during the year.
How do you calculate gains and losses on taxes? ›
The calculation for a capital gain or loss is straightforward: it starts with the selling price of your capital asset minus its cost basis (what you originally paid for it). If the number is positive (in other words, you made money on the sale), that's your capital gain.
