Stock-tax question?

Question

If I have stock that sells for a million dollars can I take the money and then stick it in the bank and draw interest on it and then pay taxes on the interest? Or will I have to pay taxes on the million and then more taxes on whatever I put into the bank?

Thanks!

Answer 1

Both of the first answers are correct, I'm only going to simplify it a bit to answer your question directly.

Let's say you bought stock in Company A 20 years ago for $1,000. This becomes your basis. We will also assume that you took all dividends, did not reinvest, and of course paid taxes on those when you received them.

Now, you sell your stock for $1 million. Subtract your basis of $1,000 and the result becomes you GAIN. We'll ignore transaction fees for this example. You will pay long-term capital gains taxes on your $999,000 gain which will be 15% or $149,850. You will be left with $849,150.

If you deposit your $849,150 in a bank, leave it there for a year and earn 5% interest (ignoring compounding). You will earn in interest about $42,450. That interest amount will become part of your income and you will be taxed on your total income. The original deposit will not be taxed again, only interest you earn on that deposit.

Answer 2

Your taxes on the sale of the stock would depend on whether you had a gain or a loss. If you had a loss you'd pay no taxes on selling the stock, but would be limited to a $3,000 deduction ($1,500 if married filing separately) on the loss (unless you had other capital gains to offset the loss against). If you sold the stock at a gain, and held it for longer than 1 year it would be long-term gain and would be taxed at maximum of 15% (5% for those in the 10% or 15% bracket). If you held the stock for less than 1 year it would be short term gain and would be taxed at your regular tax rate. And your interest from the bank would be taxed at your regular tax rate.
So you would taxed on gain from selling the stock, and taxed on the interest from the bank account.

Answer 3

the sale of a stock is a taxable event unless it is in a tax sheltered account such as an ira..the taxable event can be a gain or loss depending on the purchase versus sale price. Depending on how long the stock was held the gain or loss would be classified as either long term or short term which is handled differently at tax time. Currently long term capital gains are federally taxed at 15% and shorterm at your marginal tax rate. Long term losses can be deducted dollar for dollar against long term gains, while short term losses can reduce ordinary income up to three thousand dollars. Any short term loss above that can be carried forward to following years and used at the same limit. The federal taxes on the sale would be do either as an estimate tax payment or on april 15th..probably as an estimate to avoid penalties. Re the bank part of the question..interest earned is taxed federally as ordinary income..

Answer 4

You'd pay capital gains tax on whatever part of the million dollar sale price was gain (you'd subtract what you bought it for and any commissions you paid). Then you'd pay taxes on the interest if you put the proceeds into the bank.