Newbie Stock questions...

[Walley]

I wanted to start investing in stocks in about a year and I'm playing around with simulators at the moment. Just had a few questions I've been wondering about.

If I put in $1000 and made $100 equaling $1100 will I get taxed on $1100 or just the $100?

Will I only get taxed if I withdraw the profit I made?

I've also been wondering about selling. What happens when you sell a common stock? Does the company buy it back or other people?

Thanks.

 

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[cmaq]

You only get taxed on capital gains, thus you will get taxed on profit of $100. The 1000 will not be taxed. If you sell the shares, then you need to pay taxes, if you hold, you do not. When you sell a common stock anyone can buy, an ordinary seller such as yourself or the company. Sometimes a company will buy back their shares over time to reduce their shares outstanding, which usually is a good sign that the company is doing well, and is probably a good investment. It also brings other reasons, such as less available supply , and the same demand, creates a higher value.

 

[Walley]

So... if I took that $1100 and bought a different stock with it, will the $100 be taxed prior to buying the new stock?

If I took that $1100 and made it to $900 will I still have to pay the $100 profit prior?

If I took that $1100 and made it $1200 will I be taxed only the $100 difference?

If I get taxed on profits can I write off losts?

 

[taichijedi]

So... if I took that $1100 and bought a different stock with it, will the $100 be taxed prior to buying the new stock?

Yes, it will. Taxes are determined when sell a stock. You bought for $1,000, sold for $1,100, the $100 profit is subject to capital gains taxation.

If I took that $1100 and made it to $900 will I still have to pay the $100 profit prior?

Not sure what you mean here. Do you mean you incurred a loss of $100?

If I took that $1100 and made it $1200 will I be taxed only the $100 difference?

Again, if you reinvest the $1100, and the stock position appreciates to $1200 AND YOU SELL, then yes you are liable for the capital gains tax on the $100 profit. Try to think of it this way, if you have a stock you can only make a profit when you sell, and so taxes are only applicable once that occurs. If you don't sell your position, you technically have not profited or lost, therefore there is no tax to be levied.

If I get taxed on profits can I write off losts?

Absolutely!! Any losses incurred by a poorly performing investment can reduce or eliminate the gains earned by profitable trades, reducing your tax liability.

In fact, if you pay attention this December, you will hear about selloffs occurring in beaten down stocks. This is the effect of investors getting rid of their poorly performing positions so they can write their losses off against their taxes. Remember, you have to sell your losing positions by December 31st for them to count for the 2009 tax year (using this year as an example.)


But bear in mind this if you're selling a losing position to reduce tax liability: YOU CANNOT BUY BACK THE STOCK IN THAT COMPANY FOR 30 DAYS. If you do, the IRS does not considers it a loss, they consider it a "Wash Sale" and you lose the tax reducing characteristics of selling that position.

Hope this Helps!!

:cheers:

 

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[bflbob]

So... if I took that $1100 and bought a different stock with it, will the $100 be taxed prior to buying the new stock?

Generally, taxes aren't due until you file your taxes, so it won't matter. But the true answer is "Yes", the capital gain will be taxed prior tto buying the new stock. If you don't sell the new stock prior to the end of the year, you'll still owe taxes on the $100 profit.

If I took that $1100 and made it to $900 will I still have to pay the $100 profit prior?

The short answer is no. You'd actually have a capital loss of $100, since you had a gain of $100 and a loss of $200. This assumes both happened in the same year. It also assumes both were held under a year.

If I took that $1100 and made it $1200 will I be taxed only the $100 difference?

You would be taxed on two $100 gains, one for the first trade, and one for the second. After all, you made a $200 profit.

If I get taxed on profits can I write off losses?

Yes. But there is a limitation. In most cases, you can only deduct $3,000 in capital losses per year.

I hope this helps!

 

[JBrown]

So... if I took that $1100 and bought a different stock with it, will the $100 be taxed prior to buying the new stock?

In order for you to have that $1100 to buy anything, you would have had to sell the stock before it. So you've got 2 different transactions going on so yes, the $100 would be taxed when you sold the first stock. You'd take what you have after tax, and buy the new stock

If I took that $1100 and made it to $900 will I still have to pay the $100 profit prior?

Are you saying that: you bought a stock. You held the stock and the share prices rose making you $100 (at this point, you'd TECHNICALLY have the $1100 but you havent sold so nothing is set in stone), then the share prices dropped before you sold and not only did you lose your potential $100 profit, but you ALSO lost $100 from your principal?

If so, no, you wouldnt pay taxes on the $100 because the $100 doesnt exist anymore. The prices dropped and you lost it. The Gov doesnt keep track of your progress in the market. All they care about is your sale price in relation to your purchase price. (any profits made AKA capital gains)

If I took that $1100 and made it $1200 will I be taxed only the $100 difference?

Again this is open-ended. If you turned your original principal of $1000 to $1100 and then to $1200 on the same stock or the same purchase, then you'd be taxed on a $200 gain

If you turned your orginal principal of $1000 to $1100 then sold, took you $1100 and put into a new stock and turned the $1100 into $1200, then you would have been taxed once when you sold the first time (when you made $100 and had $1100) then you'd be taxed on another $100 when you sold the second new stock at $1200. Each time you had a gain of $100, you were taxed each time accordingly.