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When I figure my gain or loss from a stock sale, should I include commissions and other investment expenses?
If you're selling stock or other securities, determining the taxable gain from the sale is relatively simple; subtract what you paid for the stock from what you sold it for.
But don't forget to factor in the charges assessed by a broker for both the original purchase of the security and for its sale. That's known as adjusting the basis on which you measure gain or loss.
Here's the way to calculate the gain or loss:
Add the broker charge for stock purchases to your purchase price to get your cost basis.
Subtract the broker charge for sales from the sale price to arrive at the net proceeds.
Subtract the cost basis from the net proceeds to arrive at your taxable gain or loss from the stock sale.
For example, Martha purchased 100 shares of out at $10 per share, and paid her broker $25 for processing the purchase. Two years later, she sold all of her shares of out for $15 per share and her broker charged her a $45 commission for the transaction. Martha figured her gain as follows:
100 x $10 = 1000
Broker fee + 25
Cost Basis $1025
$100 x $15 = 1500
Broker fee - $45
Net proceeds $1455
1455
-1025
Taxable gain $430
If she had forgotten to factor in her purchase and sale commissions, she would have reported a gain of $500 ($70 more than she should have).
Other fees related to your purchase of the security or its sale may apply. These include state or local transfer taxes or option premiums. Factor in these amounts in your gain or loss calculation to make sure that you’ve minimized any taxable gain or maximized any deductible loss under the tax laws.
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