So, you’ve decided to do a little investing on your own in the stock market. Stock that you’ve purchased in a company has the potential to reward you with a positive return, which could supplement your income or help you prepare for retirement. But if you’re lucky enough to earn money off your stocks, you’ll have to consider the federal income tax consequences. Knowing the basics about stocks and taxes will help ensure there are no surprises come tax time.
So, the value of your stock is higher than when you purchased it, and you want to sell some of your shares to make a little money. Sounds like a great plan. Just be aware that when you sell stocks, you will be taxed on any profit you make, as capital gains. Conversely, if you sell your stock for a loss, you may be able to claim a capital loss deduction on your federal income tax return.
Tax tip: If you sell your stock within a year of purchase, any profit you make is a short-term capital gain and is taxed at the same rate as your ordinary income. If you keep your stock at least a year before you sell and experience a gain, it will be taxed at the applicable long-term capital gains rate.
If any of your stocks pay dividends in a given year, you’ll receive a Form 1099-DIV from each company that paid the dividend, which you’ll need to report on your federal income tax return. Generally, dividends are treated as ordinary income and will be taxed at your ordinary income tax rate.
Tax tip: Dividends can increase your income and push you into a higher tax bracket; so as you receive them, you may want to adjust your withholding. The IRS provides calculators that can help.
While Voya cannot provide you with legal and/or tax advice, your accountant or tax professional can give you advice based on your circumstances. And be sure to explore Voya.com for more information about investing.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal or financial advisor for specific advice about your individual situation.
The information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
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