How do I calculate my gains and/or losses when I sell a stock?
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 August 1, 2016, for $20 a share and sell 50 shares of this holding 13 months later on September 1, 2017, 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.)
Income from selling capital assets, like stocks, mutual funds or property, must be included on your taxes like income from working. However, instead of paying taxes on the entirety of the sales price, you must calculate your capital gains. In addition, it takes more time and tax forms to report your capital gains and losses when it comes time to file your return.
Before you can determine your capital gain or loss, you need to know your basis for whatever you sold. Generally, basis refers to what you paid to acquire the item. For example, if you paid a $12 commission and $3,000 to buy a stock, your basis is $3,012. If you did $2,000 of plumbing work in exchange for a painting, your basis for the painting is $2,000. When you inherit something from a decedent, your basis becomes the fair market value on the date the person died, regardless of what the decedent paid for it....this is called a "step up in basis".
Trade Gains and Losses
To calculate your capital gains or losses on a particular trade, subtract your basis from your net proceeds. The net proceeds equal the amount you received after paying any expenses of the sale. For example, if you sell stock for $3,624, but you paid a $12 commission, your net proceeds are $3,612. If your basis for the stock is $3,012, subtract $3,012 from $3,612 to find you have a capital gain of $600. If your basis was $4,012, you'd have a $400 loss.
Classifying Gains and Losses
Short-term capital gains and losses come from selling assets you've owned for a year or less. But, if you owned it for at least a year, it counts as a long-term gain or loss. The distinction comes into play in two ways. First, long-term gains are taxed at lower rates than short-term gains. Second, when you're cancelling out gains and losses because you must cancel gains and losses in the same category first, and only if you have excess losses from one category can you use them against the other. For example, if you have $5,000 in short-term gains, $4,000 in long-term gains, and $3,000 in long-term losses, you must cancel out $3,000 in long-term gains. However, only investment property losses are deductible (not those from personal assets). If you sell your motorcycle or a painting that you've had hanging in your home at a loss, that's not deductible.
To report your capital gains and losses, complete Form 8949 to show each transaction and how you figured your gains and losses. For example, if you have five different sales during the year, you need to show all five on your Form 8949. Then, copy your net long-term gain or loss to Part II of Schedule D and your net short-term gain or loss to Part I of Schedule D. Use Schedule D to figure your net gains or losses, and copy the result to your Form 1040 tax return.
The first step to figuring out gains or losses would be to determine your cost basis of the stock in question. Your cost basis is typically what you paid for the stock plus add in any commissions/fees that you paid to acquire the stock. For example:
You bought 10 shares of XYZ stock at 100/share = 1,000
You paid a commission of 50 bucks to your broker/trade platform
Total paid = 1050 as your basis you can then divide by 10 shares you own = your basis per share
Next up you have to adjust your basis for dividends you may have gotten from the stock which were reinvested. So let's say your stock paid you $100 in distributions which you then paid tax on via a form 1099 DIV. You can now adjust your basis upwards:
1050 + 100 = New basis of 1150.
Finally you the difference in proceeds from the sale will be your gain or loss.
* The situation can potentially get trickier when you have stock splits that may have occurred or if you are working with stock that you inherited as well.
Good Question, most firms provide a 1099 and gain loss summary at the end of the year, so you won't have to do this.
And most firms have a gain/loss tab for realized and unrealized gains/loss on their website.
If you're asking for a performance report type calculation, that's a more difficult question, but most RIAs should provide you with a report on a portfolio quarterly, discount brokers most likely won't have this feature.
Buy Price - Sell Price = Loss or Sell Price - Buy Price = Gain (excluding dividends). And this is a nominal return, it doesn't factor in inflation.
This is a big pain if you trade frequently. I would almost venture to say, get a tax software or seek out a tax accountant to help.
Anyway, here is a quick summary:
1. You need to know the basis of your investment.
You need to identify whether you want to do FIFO, LIFO or weighted average
2. Figure out short term and long term gains and losses
Short term is anything less than one year. Long term is one year and above.
3. Net short term gains against short term loss to get overall short term gain or loss
4. Do the same for long term to get overall long term gain or loss
5. Net your overall short term gain/loss against long term gain/loss
A. If your short term gain exceeds long term loss, the difference is taxed as short term gains, which is ordinary income tax rates.
B. If long term loss exceeds net short term gain, the overall loss is considered long term and you can deduct up to $3,000 against your ordinary income and carry forward any excess to future years.
C. If you have a net short term loss and a net long term loss, you can deduct up to $3,000 against ordinary income. You would apply the $3,000 against your short term loss first. Any unused loss is carried forward to the future.
D. If you have short term gains and long term gains, you need to apply the "look back" to see if you have any short term loss and long term loss to offset from the past.
White Wash Rule: If you sell or trade a security at a loss and within 30 days buy a "substantially identical" stock or security, you can not write off the loss.
This topic is very complicated and confusing, so seeking outside help is strongly advised. Also check out IRS Topic 409 - Capital Gains and Losses. Good luck!