When you buy a stock, do you pay taxes on it?

[Bushknew]

When you buy a stock, do you pay taxes on each individual share you buy?

If not why not?

[On the Road]

1. You Pay Taxes on Dividends

and you pay capital gains taxes if you sell it for a profit. If it sell it for a loss, it is a tax deduction (one reason tax revenues have been down the last few years).

[WhoCountsTheVotes]

5. I have to pay a sales tax when I buy something

As Helmseley said, "only the little people pay taxes"

[Yupster]

31. Do you pay tax when you

put money in a bank account? No, you pay tax on the interest you make. Same idea.

[alcuno]

35. The tax is on the back end not the front end.

When you purchase an item, you pay tax on it.

A stock sale works just the opposite because you aren't really buying any THING. You can't eat it, live in it, drive it, or get a service from it. However, if the stock price goes up and you sell it, you pay tax on the profit.

[janekat]

34. most knowledgebale people reinvest their dividends

you avoid paying excessive taxes that way.

In addition, at most corporations, most of the stock is owned by the Ceo's and other top execs. Quite often, CEOs will have their taxes paid by the corporation. These are the deals that the CEO's will demand before they are hired.

[Yupster]

36. A reinvested dividend

is still taxable in the year it was reinvested. It doesn't seem right, but it's true. Many of us with mutual funds can vouch for that.

[Charlls]

2. in theory...

Good Question

In theory there is what is called the Tobin tax, which is applied on such transactions, however, i think its not currently implemented nowhere


Greets,


ChllQ

[AP]

10. Sales tax is paid when the final consumer buys a good or service

which a stock isn't.

[newyawker99]

40. Hi Charlls!!

Welcome to DU!! :toast:

[chiburb]

3. Only if you sell at a profit. n/t

.

[Caution]

4. you do not

because you haven't made any money off of it. That would be like paying taxes when you place money into a savings account. You pay taxes on the interest you earn and taxes on any revenues that result from purchasing the stock (dividends, sale of the stock at a profit).

[Charlls]

6. ...so?

if its used as a savings account, there is a one-time cost when you buy the stock (pretty much like when you open a bank account). The purpose of the Tobin tax is to discourage speculative selling-buying

[bryant69]

7. Why would you want to discourage speculative selling-buying?

I mean that just sounds foolish. Speculative buying is what gives companies the opportunity to innovate or expand or exist. Why woudl you want to put an end to that.

I'm in favor of the rich paying their fair share to keep society going--but let's tax those funds that are being wasted--luxary taxes and so on. Money they are shooting back into the economy--well that's sort of what we want them to do, isn't it?

Bryant
Check it out --> http://politicalcomment.blogspot.com

[WhoCountsTheVotes]

the Tobin tax is on international transfer

I believe, it's designed to stop speculation against a currency, like arbitrage, designed to force the value up or down. This is how Soros basically started the Asian financial crises. A Tobin tax would be good. It's meant to stop financial speculation that does little for the physical economy, not investment.

[kendric]

41. Speculation is good

I believe, it's designed to stop speculation against a currency, like arbitrage, designed to force the value up or down. This is how Soros basically started the Asian financial crises. A Tobin tax would be good. It's meant to stop financial speculation that does little for the physical economy, not investment.

But speculation is what drives the markets. They provided liquidity for people to buy and sell into. Stock (or any investment, ie. real estate) is worthless if there isn't a liquid market for people to trade into. If you want to see real volitility in the currency markets, then implement something like the tobin tax. Each single trade between banks would cause huge swings in currency prices beacuse little trading, speculation, is being done. Speculation, belive it or not, brings less volitality to the market on whole. People just see in the news the small time wild rides, ie Soros.


Edit for grammer

[Charlls]

9. ?

so you think speculative buying gives the opportunity to innovate and shoots back money in the economy?

interesting thought.

what other things speculative buying does? surely it rises employment and drops the price of interest loans across all the economy too

[AP]

8. You pay cap gains when you sell it for a profit, or take a deduction

if you sell it for a loss.

It's not a good or a service, so you don't pay sales tax on it. It's an investment.

[Noordam]

11. All think one big reason Repugs push a FLAT TAX

Under a FLAT TAX there would be NO capital gains. And they would not allow the FLAT TAX to apply to stock buying. So Buy tax-free Sell tax-free.

Only the small people would have to pay under a FLAT TAX.

[Bushknew]

12. Anybody have an argument FOR taxing each stock you buy?

Anybody have an argument FOR taxing each stock you buy?

[jagguy]

26. to promote foreign stock exchanges

and offshore investment houses. And to choke those greedy broker bastards on Wall Street and the tens of thousands of securities people in America with their parasytic jobs.

Or perhaps this: make it less attrractive to the small investor so that he has no access to productive forms of investment !

In any event, NO THANKS ! Capital gains taxes are quite enough !

[Yupster]

32. In a way it is

because there is an SEC fee that goes onto each stock purchase.

[jody]

13. Interesting question. Poor people are forced to use "disposable income"

to buy the necessities of life and in many but not all states they pay a sales tax on such purchases.

Rich people however, can use a large portion of their "disposable income" to buy stocks and bonds.

Does anyone know of a state that taxes the sale of stocks and bonds?

[Clete]

15. Um, I think if sales tax were charged, it would bring down

Wall Street. Those guys who trade on a daily basis would have to think twice about buying a stock. However, since most savvy investors sell when they make a profit, they do pay taxes on it and it makes a nice tax breaks for the gobs that didn't get out in time and shouldn't be investing in the stock market anyway.

If a sales tax were charged in the USA, other markets in other countries would pick up the slack and we would have more of a money drain in this country than we already have. I think it is a necessary evil.

[jagguy]

16. whoa there Jody

if its paying for a necessity of life then it is NOT disposable income.

Disposable income is whats left AFTER you pay your bills. Rich people have more disaposable income. Poor people have less or no disposable income.

Everyone is welcome to trade stocks but it's more productive to do it in volume. I don't have much of that but I use as much of my disposable income here as I can. As of yesterday I'm up 83.82% on my humble investments. Its only about $1200 to the good but thats a damn site better than passbook savings. Saving up that first $500 bucks to get in the game can be a chore though.

[jody]

18. I used "disposable income" in contrast to "discretionary income"

disposable income "The amount of income left to an individual after taxes have been paid, available for spending and saving."]

discretionary income "The amount of an individual's income available for spending after the essentials (such as food, clothing, and shelter) have been taken care of."

[jody]

20. I used "disposable income" but you define "discretionary income"

disposable income "The amount of income left to an individual after taxes have been paid, available for spending and saving."

discretionary income "The amount of an individual's income available for spending after the essentials (such as food, clothing, and shelter) have been taken care of."

[Bushknew]

14. Why isnÕt a stock considered a good?

If I buy a baseball card or a stock, I have bought SOMETHING, something that has the potential of increasing in value or not; yet, why do I have to pay taxes on the baseball card and not on the stock?

[jagguy]

17. a baseball card is a thing with its own inherant value

while a stock is a representation of financial stake in a company. Not a real thing at all.

Just because baseball cards CAN increase in value is no guarantee that they will. Stocks are the same except that the company could fold and have zero value. In that case you don't even have the card to show for it. (Most people don't actually get stock certificates, they cost like $40 way more than the 15 or 20 cents a baseball card does.)

[Bushknew]

19. But when you buy a stock (baseball card) it has a value and

IsnÕt it my tuff luck if my "baseball card" decreases until it has no value at all?

[jagguy]

21. sort of

but did anyone ever attribute any value to it at all ?

You do realize that they started putting the cards in there to sell the gum originally. I don't even think they put gum in there anymore.

The card began with no value, it can only go up.

[Bushknew]

22. Well, when you bought it (the baseball card), it had a value.

Well, when you bought it (the baseball card), it had a value.

[Bushknew]

25. Whether it goes up or down in price is up to the market, no?

Whether it goes up or down in price is up to the market, no?

[jagguy]

27. but that card started out being worth nothing

it can never be worth less than what you paid for it.

But yes, price fluxuation on cards or stocks is a result of the market.

[Bushknew]

28. it can never be worth less than what you paid for it.

It canÕt, like a car depreciates in value?

[jagguy]

29. its a card, it has no value to begin with

the car begins with value and starts losing it as soon as you sign on the dotted line.

Stock begins with value and that value can go up and down or even disappear altogether.

[vision]

37. Yes it can be worth less

It matters what card was bought and when. A collectible is only worth anything while it is in good shape and desired.

http://www.bryanscards.com/
If you look here, here is an unopened box that the buyer wants $9,500 for 36 packs. Potentially the box has at least one valuable card that would make it worthwhile to buy. But it may not it is as much a gamble, even more so as I doubt that you could deduct the loss from you taxes, as the stockmarket.

Or say that you buy the 2001- 02 SPX # 90-Michael Jordan 325.00
card http://www.bryanscards.com/photo6.html
The card should go up in value as the years progress but take it out of its case and you take the chance of damaging it and then you have a worthless card. Or maybe Jordan does something in the future that is negative, that could drive up the price or down the price.

With collectiblies it is easy for the card to become worth less than was paid for it. You may think that it was worthless to begin with but as with stocks, the buyer gives it a value when it is purchased. A car has no value if nobody wants to buy it.

[AP]

38. If you started a company that invested in baseball cards,

you could buy and sell shares in the company, and nobody would be taxed. But when that company engaged in business -- bought office supplies, bought more cards, sold cards -- all those things would be taxed. And as your company became more or less valuable, there'd be tax consequences when people sold realized their profit or loss from equity ownership.

You don't think that's enough?

[vision]

39. enough for what?

The previous poster said that the cards could never go below the value of what was paid for them as they were worthless to begin with. I was pointing out that on the contrary collectibles, like stocks, only have the value the buyer is willing to pay so the items can go below the begining asking price.

As for companies paying taxes, I don't see why they should be treated any different than individuals. One poster compared stock investment to savings accounts, a major difference that I can see is that with a savings account you have to pay taxes on it each year if it earns interest. Stock if it is not sold is not charged that tax each year, correct?

[amazona]

24. just the rules of the game

When gambling, you don't pay sales taxes on your gambling chips, and when buying stock, you don't pay sales taxes on your stock. It would be quite silly, really. When you buy a stock, you do not even get a piece of paper in most cases -- well, I don't -- I get online statements from my brokerage and that's the case for most people who don't want to pay outrageous fees. So it isn't like you are receiving any product. A good bit of the time your stock actually turns out to be worth quite a bit less than what you paid. Since we don't have good SEC enforcement, even highly respected Fortune 100 stocks like Enron, WorldCom, United Airlines, etc may turn out to be perfectly worthless even to those who did diligent research and only bought blue chip stocks in major companies. Ford and Disney aren't looking too healthy either at the moment.

Tax people who have inside knowledge and actually end up making a profit on stock but to assess a sales tax on people for being the victims of crime and decades of financial received wisdom seems a bit outrageous to me. If the goal is to make rich people pay their share of taxes, rather than creating a tax to keep new blood out of the market, how about a one-time tax on net worth? Or let's just agree to tax dividends and stock profits at the same rates as any other income? How about that?

If the goal is to shut down the stock markets altogether...well...not sure I agree with that goal. I don't think the idea of speculation is entirely terrible. I just think we need to fund much more aggressive enforcement so that we have a level playing field. Right now, the whole IRA/401(K)/brokerage industry is a way to convince hard-working, conscientious middle class people to fork over their money to rich people because only the top CEOs have the inside information to reliably profit...if we've learned anything from the last few years, I should think we've learned that. (And yet I still hear young people repeat the Motley Fool mantra of DRIP or "buy and hold" and other discredited strategies. Sigh.)

[amazona]

23. no, why would you?

You don't make any money buying stock. You pay taxes on income or capital gains. Therefore, you should pay taxes on your dividends and you should pay taxes if you sell for a profit. But quite often buying a stock is a huge mistake and you actually lose money. What stock are you looking at?

[dofus]

30. If you sell for a profit

you pay capital gains taxes. If you sell at a loss, you can use the loss to offset profits, or up to $3,000 of ordinary income. At least I think that's the amount. Maybe it's only $2,000. Any additional loss, beyond offsetting some of your ordinary income or other capital gains profits, is just too bad. You took your chances.

Given how many people lose money on sale of stocks, the amount of capital gains taxes seems more reasonable.

[jody]

33. A sales tax on consumer purchases is fundamentally a "transaction tax"

on the transfer of ownership from seller to purchaser or the completion of a service by a provider to a customer.

States with sales taxes frequently exempt some type transactions from sales taxes, e.g. medicine and health care services.

Does anyone know if a sales or transaction tax has ever been imposed by a state upon the sale of stocks or bonds?