A:

To begin, you need to know your cost basis, or the price you paid for the stock. If you did not record this information, you should have an order execution confirmation and/or an account statement that covers the date of your purchase with the purchase price. Next, you determine the stock's selling price from an order execution confirmation and/or your brokerage account statement. The difference between the buying and selling prices is your gain or loss per share, which, when multiplied by the number of shares involved, gives you a total dollar amount for the transaction. If you want to further refine this number, you can add and subtract, respectively, the brokerage commissions related to the total stock purchase amount and the total stock sale amount.

Next, if the stock is in a taxable account (non-IRA or non-retirement), you will also have to consider the tax consequences. Under the current U.S. tax code., if you hold the stock for less than one year, the capital gain/loss will be considered as short term and will be calculated as ordinary income (loss) for tax purposes. If you hold the stock for more than one year and have a capital gain, it will, in most cases, be subject to the current beneficial capital gains tax of 15%. (To learn more, read A Long-Term Mindset Meets Dreaded Capital-Gains Tax.)

Let's look at an example of making a stock gain/loss calculation. Suppose that you buy 100 shares of XYZ stock on May 1, 2006, for $20 a share and sell 50 shares of this holding 13 months later on June 1, 2007, for $25 a share. On a per-share basis, you have a long-term gain of $5 per share. Multiply this amount by 50 shares and you have a long-term capital gain (15% tax rate) of $250 (50 x $5).

Investors need to remember that if a stock splits, they must also adjust their cost price accordingly. For example, if the stock purchase price was $25 and it split 2 for 1, the cost basis would be adjusted to $12.50 per share. (To learn more, see Understanding Stock Splits.)

RELATED FAQS

  1. What are some examples of different taxable events?

    Learn what a taxable event is and how it affects investors and taxpayers with examples of taxable events that can result ...
  2. How is face value used to determine taxation?

    Discover how the face value of a corporate debt security can directly impact the amount of taxes that the owner of the security ...
  3. What is the difference between gross income and earned income?

    Being able to distinguish between earned income and gross income is an important tool in preparing for and filing your individual ...
  4. What is the difference between dividends and capital gains?

    Read about some of the differences between dividends and capital gains, the two primary ways of accumulating wealth through ...
RELATED TERMS
  1. Guideline Premium And Corridor Test (GPT)

    A test used to determine whether an insurance product can be ...
  2. Cash Value Accumulation Test (CVAT)

    A test method used to determine whether a financial product can ...
  3. Capital Growth

    The increase in value of an asset or investment over time. It ...
  4. Variable Annuitization

    An annuity option in which the amount of income payments received ...
  5. Average Cost Basis Method

    A system of calculating the cost basis on mutual fund positions ...
  6. Chargeable Gain

    A British term for the increase in an asset's value between the ...

You May Also Like

Related Articles
  1. Investing Basics

    Know Your Stock Cost Basis

  2. Investing News

    There Are New REITs On The Horizon

Trading Center