Total Newbie, Thoughts?

[infurium 10]

Ok so I wanna mess around in the stock market.

I have been watching a series of stocks for the last 6 months to get a feel for when would have been a good time to buy/sell. So far if I had been actually investing I would have made out very well.

I have a few basic questions regarding the whole process, fees, taxes ect..

 

I want to open up an ETRADE account with $10,000.

ETRADE lists their prices to buy/sell a stock at $9.99 per trade.

 

So lets say I buy 1000 shares of stock X at $7.00 a share.

A few weeks later the price has jumped to $8.00 a share. I decide to sell.

So I've made a clean $1000 profit. My total cash assets are now $11,000.

 

ETRADE is going to hit me for $10 to buy and $10 to sell. So now I have $10,980.

 

I decide to cash out my profit of $980 dollars. Leaving my original $10,000 in ETRADE for a future purchase.

 

The $1000 I owe taxes on, short term capital gains right? That means if I am in a 25% tax bracket for income tax that I owe Uncle Sam 25% in taxes of my $1000 profit. Right?

 

So when its all said and done it would be $1000 - $250 (taxes) - $20 (ETrade fees) = $730 which is my profit.

 

Does this sound correct, did I miss anything?

[MadMarketScientist 11]

Capital gains exclude commissions, so you pay tax only on $980 ... at least that's how it works up here in Canada

 

MMS

[Mysticforex 13]

MMS is right. In the US capital gains is tax 20%. The $20 commission is a business expense.

[gosu 10]

Ok so I wanna mess around in the stock market.

I have been watching a series of stocks for the last 6 months to get a feel for when would have been a good time to buy/sell. So far if I had been actually investing I would have made out very well.

I have a few basic questions regarding the whole process, fees, taxes ect..

 

I want to open up an ETRADE account with $10,000.

ETRADE lists their prices to buy/sell a stock at $9.99 per trade.

 

So lets say I buy 1000 shares of stock X at $7.00 a share.

A few weeks later the price has jumped to $8.00 a share. I decide to sell.

So I've made a clean $1000 profit. My total cash assets are now $11,000.

 

ETRADE is going to hit me for $10 to buy and $10 to sell. So now I have $10,980.

 

I decide to cash out my profit of $980 dollars. Leaving my original $10,000 in ETRADE for a future purchase.

 

The $1000 I owe taxes on, short term capital gains right? That means if I am in a 25% tax bracket for income tax that I owe Uncle Sam 25% in taxes of my $1000 profit. Right?

 

So when its all said and done it would be $1000 - $250 (taxes) - $20 (ETrade fees) = $730 which is my profit.

 

Does this sound correct, did I miss anything?

 

 

HERE ARE THE BASIC RULES CONCERNING YOUR OPTIMISTIC POST WHICH DEALS WITH GAIN ONLY

 

The commission you pay when you BUY a stock is added to the purchase price and the total becomes your COST BASIS.

 

The commission you pay when you SELL a stock is subtracted from the gross proceeds and this amount is your ADJUSTED SALE PRICE.

 

ADJUSTED SALE PRICE - COST BASIS = Your gain or loss on the sale.

 

The character of your gain or loss is CAPITAL gain or CAPITAL loss UNLESS you are a dealer or have made the mark-to-market election.

 

Capital gain or loss on stock held more than a year is LONG-TERM.

 

Capital gain or loss on stock held 1 year or less is SHORT-TERM.

 

ONLY LONG-TERM CAPITAL GAIN is currently given preferential rates (up to 20% max).

 

SHORT-TERM CAPITAL GAIN is taxed at your ordinary income rates.

 

NOW TO YOUR EXAMPLE

 

You buy 1000 shares of Company X stock at $7/share and pay $10 in commission. Therefore, your COST BASIS = $7010 for the 1000 shares (or $7.01 for each share, in case you don't sell all your shares at once).

 

A few weeks later you sell all 1000 shares at $8/share and pay $10 commission. Therefore, your ADJUSTED SALE PRICE = $7990 for the 1000 shares.

 

Your gain on the sale = ADJUSTED SALE PRICE - COST BASIS = $7990 - $7010 = $980.

 

Since you neither are a dealer nor have made the mark-to-market election, your gain is CAPITAL gain.

 

Also, since you held the shares for not more than a year, the gain is SHORT-TERM and therefore taxed at your ordinary income tax rate of 25%.

 

Your federal income tax on the gain = $980 * .25 = $245

 

Your net gain after federal income tax = $980 - $245 = $735.

 

 

You will also owe state tax on your gain unless you live in a state with no income tax or a limited income tax that does not tax capital gains.