Q: Say I buy $100 worth of stock. If the price jumps to $125 and I sell $100 worth, do I pay taxes? — David, Middletown, Conn.
A: Yes, your gain is taxable, says CPA Michael Goodman of Wealthstream Advisors in New York City.
Assuming the shares are in a taxable account, your tax bill will be based on the profit you made on each share you sell.
Say, for example, that you purchased 10 shares at $10 each for $100. If the stock price rises to $12.50, and you then sell $100 worth of your stock, you’re actually selling eight shares that you originally bought for a total of $80. Thus, you’ll owe taxes on a $20 gain.
If you’ve held those shares for one year or less, that gain will be taxed as ordinary income. Shares held for longer are subject to lower capital gains rates, typically 15%.