When you sell stocks and make money on the transaction, you must pay tax on your gains. However, the amount of tax may vary, depending on when you buy and sell. On some stocks, you pay capital gains tax. On others, you pay the same rate as your regular income.
For stocks you own for longer than a year as of October 2012, you pay a maximum tax rate of 15 percent. You must keep track of the purchase date and the selling date for all of your stocks, so that you can be sure whether you qualify for the long-term tax rate.
If you hold a stock for a year or less and sell it, you pay the short-term tax rate. This rate is the same as for your ordinary income. For example, if you fall into the 25 percent tax bracket, you would pay 25 percent on any short-term stock gains.
If you lose money on a long-term stock, you can use the loss to offset long-term gains. For example, if you made $5,000 on long-term stocks, but lost $2,000 on some other long-term stocks, you would pay taxes only on your net $3,000 gain.
Short-term losses offset short-term gains. This can save you the most money, because short-term gains get taxed at your regular income tax rate, which is higher than the 15 percent rate for long-term gains.
After you have applied long-term losses to long-term gains, and short-term losses to short-term gains, you can list the totals on Schedule D. You can apply your totals against each other. For example, if you had a short-term gain of $2,000 after writing off short-term losses, and you show a long-term loss of $1,500, you would pay only short-term taxes on $500.
You can write off up to $3,000 of losses each year. If you have more than that, you can carry your losses forward to next year’s taxes. If the next year does not use up your losses, you can carry them forward each year until you have written off all of your stock losses.
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.