Cash in without taxes?

[Badger]

A number of years ago I bought some stocks I would like to sell but I don't know if it would affect my taxes. I was told it would but I thought I would ask here.
Just to use numbers for illustration let's say from my salary I earned $20k that I wanted to use to buy stock. After paying taxes on the $20k I had $15k left to buy stock with. 10 years later the stock was worth $25k. If I sell $15k of the stock (the amount of money that was already taxed and used for the original purchase) but leave in $10k that the stock increased by will I have to pay taxes understanding that when I sell the remaining it would be taxed?

Cheers!

[exnavynuke]

In general, you'll be taxed long-term capital gains on the change in share price for the shares of the stock you sell if you've had it for more than 1 year. So if you bought 1,000 shares at $15 each, and it's now 1,000 shares at $25 each, you'd pay capital gains tax on $10/share for each share you sold (the difference between original share cost and current share cost).

[NgineER]

Tax rates on capital gains are determined by your tax bracket. If you are in the 0-15% tax brackets you pay no capital gains tax on the sale of assets held over a year. The capital gains amount is based on the purchase price per share, or cost basis, not cost basis per account. You cannot separate the shares out like you had in your example. Tax is due per share.

[NgineER]

You can also cancel out gains by selling other stocks at a loss

[broadway]

Quote:

Originally Posted by Badger A number of years ago I bought some stocks I would like to sell but I don't know if it would affect my taxes. I was told it would but I thought I would ask here. Just to use numbers for illustration let's say from my salary I earned $20k that I wanted to use to buy stock. After paying taxes on the $20k I had $15k left to buy stock with. 10 years later the stock was worth $25k. If I sell $15k of the stock (the amount of money that was already taxed and used for the original purchase) but leave in $10k that the stock increased by will I have to pay taxes understanding that when I sell the remaining it would be taxed? Cheers!

Depending on your tax bracket, you will pay tax on the $10K long-term capital gain.

Too bad, you didn't invest in a Roth IRA at the time.

0. Contribute to emergency fund.
1. Contribute to 401(k) up to match.
2. Contribute to Roth IRA.
3. Contribute to 401(k) up to maximum.
4. Contribute to index fund in a taxable account.

[LOL!]

Quote:

Originally Posted by exnavynuke In general, you'll be taxed long-term capital gains on the change in share price for the shares of the stock you sell if you've had it for more than 1 year. So if you bought 1,000 shares at $15 each, and it's now 1,000 shares at $25 each, you'd pay capital gains tax of $10/share for each share you sold (the difference between original share cost and current share cost).

There is a typo in the above that makes it worse than it really is. You'd pay capital gains tax ON (not OF) $10/share. Your capital gains tax rate will depend on many things and could be as low a 0% and go up to higher than 20%.

So we cannot tell you if you can cash in without paying tax. It will depend on your other taxable income.

[exnavynuke]

Quote:

Originally Posted by LOL! There is a typo in the above that makes it worse than it really is. You'd pay capital gains tax ON (not OF) $10/share. Your capital gains tax rate will depend on many things and could be as low a 0% and go up to higher than 20%. So we cannot tell you if you can cash in without paying tax. It will depend on your other taxable income.

Oops, fixed that, yeah... big difference lol

[Sunset]

OP - Since you don't know much about this, I think the answers folks gave above will be confusing and possibly wrong.

The best answer would be if you told some actual numbers as that is what taxes are based upon. Plus being married and other income matters.

I'm guessing you don't do your own taxes, otherwise I'd say copy your tax file and open it in the program and add in the stock sale to see the effect.

When you bought the stock you paid a price (the basis). IF it has gone up, then each time you sell a stock you will have a capital gain on each share (selling price - basis price). This might be taxable or not.
If you are in the 10% or 15% tax bracket (married folks it is approx gross income of $90,000) then it would be non-taxable gain.

Just to make it more fun for you, if you are collecting just SS, then you have to watch the issue of making some of your non-taxable SS, suddenly taxable.

[sengsational]

In a few days you'll be able to get 2016 tax software. Buy it, install it, and begin plugging various sale amounts and watch the refund amount change.

[pb4uski]

Quote:

Originally Posted by Badger A number of years ago I bought some stocks I would like to sell but I don't know if it would affect my taxes. I was told it would but I thought I would ask here. Just to use numbers for illustration let's say from my salary I earned $20k that I wanted to use to buy stock. After paying taxes on the $20k I had $15k left to buy stock with. 10 years later the stock was worth $25k. If I sell $15k of the stock (the amount of money that was already taxed and used for the original purchase) but leave in $10k that the stock increased by will I have to pay taxes understanding that when I sell the remaining it would be taxed? Cheers!

No, it is not first-in, first-out as you say in your example. The salary and that you paid tax on it are irrelevant. What counts is the proceeds from the sale and what you paid for those shares (aka your cost basis).

If you took dividends in cash and sell $15k of stock, you would have a $6k capital gain [($25 value - $15k cost basis)*60% sold]. If your taxable income is in the 15% tax bracket or lower you would owe zero in tax. If your taxable income is higher, you may owe as much as $900 (15% of the gain). Unless your income is really high, it will be somewhere between $0 and $900.

If you reinvested dividends, then it gets more complicated but your gain would be lower and if you are subject to tax it would be lower as well.

[Badger]

Quote:

Originally Posted by broadway Depending on your tax bracket, you will pay tax on the $10K long-term capital gain. Too bad, you didn't invest in a Roth IRA at the time. 0. Contribute to emergency fund. 1. Contribute to 401(k) up to match. 2. Contribute to Roth IRA. 3. Contribute to 401(k) up to maximum. 4. Contribute to index fund in a taxable account.

Thanks, and I did all the things you listed to the maximum allowed for quite a few years. Now I'm trying to limit my taxes once RMD kicks in.

Cheers!

[Badger]

Thanks for all the replies. I think I understand now. I will be just above the 15% tax bracket so I will owe taxes for the increase over the original cost. Not quite as bad as I thought it would be. Time to play some "what ifs" on tax software.

Cheers!

[panacea]

One more thing. I'm quite certain that you won't necessarily owe cap gain taxes on the entire gain if you're on the edge of the 15/25 bracket. In other words part of your gain is taxed at 0% and part is at 15% for federal if you're just over the 15% bracket. Not penalized for the entire amount just because you crossed the line. You could also test this with TurboTax or similar tax prep software.

[pb4uski]

Quote:

Originally Posted by Badger Thanks for all the replies. I think I understand now. I will be just above the 15% tax bracket so I will owe taxes for the increase over the original cost. Not quite as bad as I thought it would be. Time to play some "what ifs" on tax software. Cheers!

If you're going to be just over the 15% tax bracket with the capital gain you may be able to sell enough to stay in the 15% bracket in 2016 and some more but still staying under the 15% tax bracket for 2017 in January 2017 and end up paying 0% tax on the capital gain.