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Report Stock Investment Tax on Tax Return

If you want to build wealth and financial security, investing in stocks is a great way to do so. However you need to understand how stock market taxes could affect your tax bill. 

In general, any profit you make from the sale of a stock is taxable at 0%, 15%, or 20% if you hold the shares for more than a year, or at your ordinary tax rate if you hold the shares for less than a year. The dividends you receive from stock are typically taxable as well.

Here’s what you need to know about taxes on stock gains and how to lower them. Throughout this article, you will learn about different types of stocks and how each of them is taxed. Be sure to seek tax help before making any big decisions if your situation is complicated. 

a man calculating the stock investment tax in & near Bronx, NY

But before we get to that, let’s answer one important question about stock investment tax:

How do I know if I need to report?

If you’re wondering you have to report stock investment taxes on federal and state income taxes, here is the answer: Any stocks, bonds, options, or other investments you sold this year must be reported on your tax return. 

If your stocks were sold at a profit, you would owe taxes on stock gains. Stock losses could be written off up to $3,000 if you sold them at a loss. Your tax return will also need to include dividends and interest you earned. 

In contrast, you will not have to pay stock investment tax if you purchased securities but did not sell them this year.


Restricted stock units

A restricted stock unit (RSU) is an alternative to a stock grant. RSUs do not result in you receiving company stock. As opposed to actual stock, you receive units that will be exchanged at a future date. In most cases, the date you take ownership of your shares, known as the vesting date, is based on either performance or time.

You do not have any immediate tax liability when you receive an RSU. You should only pay taxes when your RSU vests and you receive actual stock shares. At that point, report RSU on tax return based on the stock’s fair market value.

Stock grants

When a company grants you stock shares, you do not receive a unit that gives you a future right. There is, however, no guarantee that you will be able to sell the shares immediately. Many stock grants include a vesting period, during which you can still lose the right to own the stock.

The only time you have 100% ownership rights over your stock is when it is fully vested. Stock grants typically vest after a certain period or after meeting certain performance measures, just like RSUs. Stock grants do not trigger tax on shares until they vest; that’s when you must report an income equal to the value of the stock.

stock investment tax information by SCL Tax Services In & Near Bronx, NY

Selling the stock

If you sell stocks you received from a stock grant or RSU, you will likely have to pay taxes again. As soon as you pay the income tax on the fair value of your stock, the IRS taxes you like if you had purchased it on the open market. The IRS taxes you in the following ways:

  • You are subject to capital gains tax on stocks if you sell the stock for more than its fair value when it vests.
  • You owe ordinary income tax on the gain if you hold the stock for less than one year.
  • Your gain will be long-term, so you’ll have to pay tax at the lower capital gains rate if you hold the stock for more than one year.

Paying taxes

If you receive stock through stock grants or RSUs, it will typically be reported on your W-2 as compensation. Withholdings are typically made to offset what you may owe when you do your taxes. It is possible that the taxes that your employer deducts from your paycheck are not enough to cover all the taxes you owe when you file your return.

You may have to pay estimated taxes if your employer doesn’t withhold taxes on your stock grant or RSU. 

You need to send estimated taxes to the IRS about every three months, this year on April 18, June 15, September 15, and January 15. Those are estimates of how much you’ll owe in total when you prepare your taxes for the year.

For example, if you receive a large stock grant in February 2022, you should pay estimated taxes for that grant on April 18 if there is no employer withholding. You might not need to make estimated payments in June or September if your following stock grant is not until December.


If you don’t want cash taken out of your paychecks, you might be able to pay the tax by having your employer deduct it from your shares. For example, if you are receiving 100 shares of stock and 10% tax is withheld, your employer may liquidate ten shares and grant you 90 shares. In case you find it difficult to see what’s right for you, feel free to call or stop by our tax office in the Bronx, NY, so that we can discuss your tax situation. 

Stock options 

In general, stock options are taxed on the basis that you have to pay tax if you have income. When you exercise your options, how much stock market taxes you owe will depend on whether that income is considered an ordinary income or capital gain.

Stock options can be divided into two types:

  1. Stock options offered by employers
  2. Open market stock options


Getting an employer stock option

You might receive two main types of stock options from your employer:

  • ISOs and statutory stock options are also called incentive stock options
  • Non-qualified stock options (also known as non-statutory options or NSOs)


Employer stock options are typically granted at a discount or a fixed price to purchase stock in the company. Although both types of options are often used as bonuses or as rewards for employees, they have different tax return implications.


Regardless of the type of stock, you are awarded, you usually won’t face any tax consequences when you receive it.


Exercising an option

Exercise an option means paying the price specified by the option for shares of stock, also known as the award, strike, or exercise price.


Selling the stock

You might have to pay additional taxes when you sell the stock you’ve acquired through the exercise of an option.

Similarly, if you acquire stock by exercising an option and then sell it at a higher price, you have a taxable gain just as if you had bought it on the open market.

As long as you hold the stock for at least a year after exercising the option or at least two years after the grant date, you should report a long-term capital gain on your return, which is usually taxed at a lower rate.

A capital gain that does not meet the holding period requirement is considered short-term and is taxable as ordinary income.

Form 1040, Schedule D, should be used to report long-term gains. Short-term gains will typically appear in box 1 of your W-2 as ordinary income, and you should report them as wages on Form 1040. Our tax return preparation services are available in the Bronx, NY, if you need them to report your capital gains tax on stocks.


Open market options

When you purchase or sell stock options on the open market, the tax rules are similar to those you receive from your employer. In the case of open-market options, you do not have to report any information on your tax return.


The profit or loss from the sale of an option or the stock acquired when you exercised the option must be reported on Schedule D of your Form 1040.


  • You will experience a short-term gain or loss if you sell a stock or option less than one year after you bought it, which adds to or reduces your ordinary income.
  • Capital gains or losses are considered long-term when options are sold after a holding period of one year or longer.


Whether you have stock, bonds, cryptocurrency, ETFs, or other investments, we can take care of your tax needs. Count on SCL tax Services in and near Bronx, NY, to cover all of your tax needs, including accounting, tax preparation, tax refund, or any other tax help you or your business may need.

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