Question

Peter buys 1000 shares of Sunshine Corporation stock in 2008 at $2 a share. In 2010 the stock is doing great, Peter decides to sell and use the money towards a new car. He sells the Sunshine Corporation stock for $10 a share. Peter has a 25% ordinary tax rate, and a 15% capital gains tax rate. How much will Peter owe in taxes on this stock sale?

Answer 1

Bought: 1,000 x $2 each = $2,000

Sold: 1,000 x $10 = $10,000

Profit = 10,000 - 2,000 = $8,000

Ordinary tax rate is used if they held the stocks for less than 1 year.

Since he had the stocks for 2 years only capital gain tax is used.

Capital gains tax is on the profit:

8,000 x 0.15 = 1200

Total taxes =  $1,200