Do you pay taxes on stocks you don’t sell?

Answered by James Kissner

When it comes to stocks, taxes can be a bit complex. Generally, you don’t have to pay taxes on stocks that you don’t sell. This means that if you bought securities but did not engage in any selling transactions in 2020, you won’t have to pay any “stock taxes” for that year. However, there are a few things to keep in mind.

Firstly, it’s important to understand that simply holding stocks does not trigger a taxable event. You only realize a gain or loss when you sell the stocks. So, if you’re just holding onto your stocks and not making any sales, there’s no need to report anything on your tax return.

However, there are some instances where you may still have to report certain income related to your stocks, even if you didn’t sell them. For example, if you received dividends from your stocks, those dividends are generally taxable income. Dividends are typically paid out by companies to their shareholders as a portion of their profits. These dividends are often subject to specific tax rates, depending on factors such as whether they are qualified or non-qualified dividends.

Similarly, if you earned interest on any investments that you hold, such as interest from bonds or savings accounts, that income is also typically taxable. It’s important to report this interest income on your tax return, even if you didn’t sell any stocks.

To report your dividends and interest income, you will need to receive the necessary tax forms from the institutions or companies that paid you. For dividends, you will typically receive a Form 1099-DIV, which will detail the amount of dividends you received and any associated tax information. For interest income, you will typically receive a Form 1099-INT.

It’s worth noting that if you have investments in tax-advantaged accounts like Individual Retirement Accounts (IRAs) or 401(k)s, you generally won’t have to pay taxes on the dividends and interest earned within those accounts until you start withdrawing the funds in retirement.

If you didn’t sell any stocks in 2020, you won’t have to pay any taxes specifically related to your stocks. However, if you earned dividends or interest from your investments, you will need to report that income on your tax return. It’s always a good idea to consult with a tax professional or use tax software to ensure you accurately report all your investment income and comply with the tax laws.