Question 1

What's the difference between short-term and long-term capital gains tax?

Accepted Answer

Short-term capital gains apply to stocks held for one year or less and are taxed at your ordinary income tax rate (10-37%). Long-term capital gains apply to stocks held over one year and are taxed at preferential rates (0%, 15%, or 20%). For example, selling at a $10,000 profit: short-term at 24% rate = $2,400 tax, long-term at 15% rate = $1,500 tax - a $900 savings.

Question 2

What is the wash sale rule and how does it affect my losses?

Accepted Answer

The wash sale rule prevents you from claiming a tax loss if you buy the same or substantially identical security within 30 days before or after selling at a loss. For example, if you sell Stock XYZ at a loss on Dec 15 and buy it back on Jan 3, you cannot deduct the loss. You must wait 31+ days or buy a different security to claim the loss.

Question 3

How do I calculate my break-even price on a stock?

Accepted Answer

Break-even price = (Total Cost + Transaction Fees + Taxes) / Number of Shares. For example, if you bought 100 shares at $50 with $10 commission ($5,010 total cost) and will pay 15% capital gains tax and $10 sell commission, your break-even is approximately $59.35/share. Our calculator shows exact break-even including all fees and taxes.

Question 4

What is cost basis and why does accurate tracking matter?

Accepted Answer

Cost basis is your original purchase price plus commissions and fees - it determines your taxable gain or loss. If you bought 100 shares at different prices (dollar-cost averaging), the IRS allows different methods: FIFO (first-in-first-out), specific identification, or average cost. Accurate tracking can save hundreds or thousands in taxes and avoid IRS penalties.

Question 5

How do state taxes affect my stock profits?

Accepted Answer

Most states tax capital gains as ordinary income, with rates from 0% (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming) to 13.3% (California top rate). State taxes stack on top of federal taxes. A $10,000 long-term gain could result in: $1,500 federal (15%) + $1,330 California (13.3%) = $2,830 total tax (28.3% effective rate).

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