Trading stock is among the more common investments for individuals and financial institutions alike. Stock represents ownership in a company, with the value of stock shares rising and falling based on what other investors are willing to pay. Trading stock can be a long-term source of income if you invest wisely and know where you expect that income to come from.
Research and Planning
Plan ahead and research the investments available to you in order to give yourself the best chance of making income from stock. Learn about the companies you might consider investing in. Diversify your stock portfolio so that you have more opportunities to make income when one sector of the economy grows. Develop a plan for selling your shares online or through a broker so that you can turn your stock back into cash quickly when your analysis suggests that one of your stocks is at its peak value.
Selling for Gains
Capital gains are income that you make when you sell stock for more than it cost to buy and manage it. Capital gains are taxed as investment income, and you can use the money to make new investments or spend as you like. Capital losses, which come from selling at a loss, offset taxable gains. Sell stock strategically to use your losses to offset gains, letting you keep more of the income you make from stock.
Some stock provides additional income in the form of dividends. If you buy dividend stock, you'll receive regular payments in either cash or more stock (which you can sell for cash), even if the share price goes down. Dividend stock provides a steady source of income and is available at all price points and in all sectors of the economy. Selecting dividend stocks gives you strategic flexibility by providing ongoing income that lets you hold your investment longer, waiting for its value to rise.
Gains and dividends are both taxable income. But just as capital losses help you make more income from stock gains, you can also save on taxes by calculating accurate cost bases for your stocks. The cost basis for stock is the cost to purchase it, plus any money you spend managing your investment. The cost of a broker, lawyer and investment tracking software are all deductible, depending on your tax situation. Carefully claim all costs associated with trading stock to retain as much of your income as possible at tax time.
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