Income Earning Through Stocks

Capital gain

The profit you make when you sell a capital asset (almost anything you own for personal/investment purposes) for more than its adjusted basis (typically the original purchase price + certain improvements or costs)

Capital loss

Occurs when you sell a capital asset for less than its original purchase price

First step: dividend income

• Identify dividend payments: track all dividends paid to you by the stocks you own

• Total dividend income: sum up all dividend payments received over a specific period (e.g., a year)

Second step: capital gains/losses

• Determine cost basis: the original purchase price of the stock, including any commissions or fees you paid

• Determine net proceeds: the sale price of the stock minus any commissions or fees paid upon selling

• Calculate capital gain or loss

• - Gain: If your net proceeds are greater than your cost basis, you have a capital gain. Calculate this by subtracting the cost basis from the net proceeds.

• - Loss: If your net proceeds are less than your cost basis, you have a capital loss. Calculate this by subtracting the net proceeds from the cost basis.

Third step: Total stock income

• Combine dividend income and capital gains/losses: Add your total dividend income to your capital gains (or subtract your capital losses) to arrive at your total income from stocks.

Let’s say you received $500 in dividends and had a capital gain of $1,000 (after selling some stock). What would your total stock income be?

If I had a capital loss of $200 instead of a gain, what would it be?

$500 + $1,000 = $1,500

$500 - $200 = $300