Your Stock Profits are Taxable – Here is How to Do it Right

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One common misconception is that you don’t need to pay stock tax when using an online brokerage. The reality is the opposite, as your account is taxable in several ways. An online brokerage account does not exempt you, provided the brokerage is taxable.

The global online trading industry hit a value of $9.21 billion in 2022, with a compound annual growth rate of 6.7%. It is a significant industry, but one that is subject to the existing tax laws. You don’t want to be hit with a hefty tax bill for past trading activities.

Paying attention to a few things and regularly filing your taxes will keep you out of the claws of the law. But how do you file your stock profit tax? Let’s first look at what is taxable and what is not.

Taxable Stock Profits

Even the cryptocurrency market is not free of taxation. How much more stock trading where you buy and sell regulated financial instruments?

All earnings from your stock brokerage account are taxable under the current laws. However, gifts or winnings are exempt from taxation. How do you earn profits from stocks?

You earn profits in the following ways:

  • You bought stocks and sold them for a higher price.
  • Dividends on the company shares you own

If these two scenarios relate to you, it is time to file your taxes. You might even receive a letter from the IRS stating the amount you will pay. Even so, there are better approaches than waiting for the IRS, as you might get more than you need.

Tax Rate for Stock Profits

There is no taxation if you sell your stocks for less than you paid. Do the opposite (sell for a higher amount), and you must file your tax. You can fill out the form yourself or engage the services of a local financial advisor.

Taxes on stock profits come in two forms:

  • The regular income tax rate
  • Capital gains tax rate

The regular income tax rate applies if you profit from a stock you’ve owned for less than a year. On the other hand, capital gains tax rates apply to profits from stocks you have owned for more than a year. Both rates (percentages) are derived from or dependent on your income.

Filing Your Taxes

The process is simple, but you must ensure a few things before the due date. They include the following:

  • Ensure you know how to get your account’s profit and loss information. You can also keep your records, as you will need them.
  • Obtain Form 1099-B from your brokerage.

Your tax filing will be easier if you have the above information. Form 1099-B details your stocks, acquisition, and sale dates, cost and selling price, profit or loss, and other withheld taxes. Furthermore, this form will help you complete Form 8949, which you will submit to the IRS.

Form 8949 has two sections. One is for short-term transactions on assets you have owned for less than a year. Then the second part is for assets you have owned for over a year.

The information needed in both parts includes the stock name, number of shares, etc. You will also include the purchase and sale dates, cost price, selling price, and profit or loss.

The Schedule D

Filling out Schedule D comes after you have completed Form 8949. The former is part of Form 1040 and one of the final steps to complete your tax filing. Also, it helps you generate your overall profit or loss from your stock trading.

Again, you will find two sections on Schedule D. One is for short-term profits, while the other is for long-term gains. You will also separate the data based on how long you have owned the assets.

After completing Schedule D, you can transfer it to Form 1040. The latter will also reflect any withheld tax from your brokerage.


Do not think you are spared from taxation if you engage in online stock trading. Your profits are taxable whether you held the assets for less than a year or more. Nevertheless, the process of filing your taxes is easy.

Keep track of your transactions and file them early. You can also engage a financial advisor to help you with the filing process.

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StockHax strives to provide unbiased and reliable information on cryptocurrency, finance, trading, and stocks. However, we cannot provide financial advice and urge users to do their own research and due diligence.

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