Profit on sale of shares is taxable | Economy


Question: My financial advisor recommends that I sell stocks in my taxable brokerage account. I will not withdraw the money from the account after the sale. Will this be a taxable event for me? I don’t want to pay more taxes.

To respond: There are several things to consider before selling your shares. If the stocks are in an IRA or 401-K, the sales are generally not taxable. When money is withdrawn from an IRA or 401-K, it is usually taxable. The most common withdrawals are required minimum distributions which are mandatory after a certain age.

Since you have a taxable brokerage account and not a retirement account, sales of securities in the account may be taxable. If you sell securities for more than you paid, you will make a taxable profit.

It doesn’t matter that you withdrew the money from the account. Winnings are taxable unless there are other sales that are losses to offset the winnings.

For example, if you sold 100 xyz shares at $10 and your cost basis was $5, you would have a taxable gain of $500. (100 x $5). If there were no other sales in the account, you would pay capital gains tax on the $500. If in the same year you sold 100 zxw shares for $5 which cost you $10, you would have a loss of $500 to offset the previous gain of $500. This would eliminate the capital gains tax.

Planning is therefore essential for making sales in taxable brokerage accounts. You will receive a Form 1099-B each year showing the transactions for the year. So plan your sales carefully to avoid tax surprises. You can deduct up to $3,000 of capital losses per year on your federal income tax, so if you have losses on paper, you may want to sell those losers to help lower your taxes.

If you have more than $3,000 in capital losses in a year, you can carry the excess forward to the next year. Planning is important.

Frank Anderson is a retiree living in Hardin County.

Frank Anderson is a retiree living in Hardin County.


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