When you own several stocks, it's easy to confuse your winners and losers and lose track of how you're doing with your investments. With a simple system, you can watch your portfoliio, make informed buying and selling decisions and calculate the gains and losses not only for your personal records, but for your taxes. Establishing your own accountability can make you a better investor by giving you feedback on the effectiveness of your trading decisions.
Write down the share price of each stock you buy. Also write down the number of shares and the date you purchased it. This vital information allows you to figure not only actual gains and losses, but the kind of tax treatment those gains and losses qualify for.Step 2
Calculate your cost basis for each stock. You find this by multiplying the share price times the number of shares you bought. For example, if you buy 1,000 shares of XYZ stock at $12 per share, multiply 1,000 times 12 and you find that your cost basis for that stock is $12,000. Record your cost basis next to the share price, number of shares and purchase date.Step 3
Figure the current stock value. On any given day, you can find your profit or loss by figuring the current stock value. Simply multiply the number of shares times the current stock price. For example, if you own 1,000 shares of XYZ stock and the current share price is $13, multiply 1,000 times 13 and you know that the current stock value is $13,000.Step 4
Subtract your cost basis from the current value of the stock. In our example, the cost basis was $12,000 and the current value on the day we checked it was $13,000. Starting with the current value of $13,000, subtract the cost basis of $12,000 and you see that you have a $1,000 profit in that stock.Step 5
Check your original purchase date if you are thinking of selling a stock and taking profits. If you hold a stock longer than one year, you pay the capital gains tax rate on your profits, which is lower than the ordinary tax rate as of November 2012. If you hold the stock for less than a year, you pay the ordinary tax rate on the profits. In cases where you are very close to the one-year mark, you may decide to hold the stock a few days longer so your gain will count as long-term and qualify you for the lower capital gains tax rate.
To calculate losses, use the same information you wrote down when you purchased the stock: cost per share, number of shares and the date. Also figure your cost basis for the stock.Step 2
Subtract the current stock value if it is lower than the cost basis. For example, if you bought shares of a stock for $12,000, and on the day you check it, the stock is worth $11,000, subtract 11,000 from 12,000 and you find you have lost $1,000.Step 3
Divide your losses into short-term and long-term. If you sell a stock for a loss and you have held it less than a year, you can write off the loss against your short-term gains. If you sell a stock you have held for more than a year, write off the long-term loss against long-term gains. If you still show losses, you can write off up to $3,000 a year from your taxable income. The $3,000 figure includes any combination of short-term and long-term losses. If your losses exceed $3,000, carry them forward to the next year and write them off against any gains you have in that year. Write off long-term losses against long-term gains, and short-term losses against short-term gains. You can do this for subsequent years until you use up the entire loss.
- For tax purposes, you don't have a loss or a gain until you actually sell a stock. You don't claim gains or losses on your taxes for stocks you haven't sold.
Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.