What Happens When You Sell a Stock? The Process & Your Taxes

There’s a lot to consider when selling stocks, including your tax bill.

People sell stocks for numerous reasons. But if you make a profit on the sale, you generally need to report it when you file your taxes the following year. (Different rules apply when selling stocks inside a retirement account.)

Before you hit that trade button, make sure you understand what happens when you sell a stock.

Here’s everything you need to know.

Know When to Sell a Stock

There’s no “perfect” time to sell a stock. The best time to sell depends on your personal investment strategy, risk tolerance and time horizon.

Stock prices rise and fall, so you don’t want to sell a good stock just because it experienced a temporary dip. On the flip side, you don’t want to cling to plummeting shares that have little hope of ever rebounding.

For most investors, holding stocks long-term is the best strategy. Avoid selling on impulse and during stock market downturns. As they say: Time in the market beats timing the market.

Still, sometimes it makes sense to sell. In general, selling a stock is a poor decision only when it’s driven by emotion instead of data and research.

Five times it makes sense to sell a stock

  1. You need the money and you can sell at a profit.
  2. The company performs poorly relative to its competitors and its outlook is bleak.
  3. The company commits fraud, files for bankruptcy or engages in crime.
  4. The company has undergone a major change (like a merger or acquisition) and you no longer agree with its ethics or leadership.
  5. You’ve done your research and believe your money can be put to better use invested elsewhere.

How to Sell a Stock: the Right Order Type

Order types let you decide how you want to sell your stock. Picking the right order type can help you maximize returns and minimize losses.

There are three main order types:

  • market
  • Limit order
  • Stop (or stop-loss)

Market Order

A market order executes a trade quickly — but it doesn’t guarantee an…

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