Did You Sell Stocks This Year? Here’s What You Actually Owe in Taxes.
- Adam Majid
- Apr 4
- 4 min read
After watching my stock portfolio rise and fall all year, I decided it was time to cash out. However, I didn’t want a massive tax bill eating into my profits.
Many investors don’t realize: you don’t pay capital gains tax on the full sale price.
Key takeaways
You pay tax only on the profits earned from investments you sell.
Be sure to deduct commissions and fees from your total profit.
Capital gains are taxed at two different rates based on how long you held the investment.
Pro-tip: Making your investments through a TFSA or an RRSP is a great way to minimize your payable tax.
Table of Contents
You only pay tax on your profit — not what you paid to buy it.
If you sell at a loss, you won’t owe capital gains tax — and you will even be able to use the loss to offset other gains from different tax years.
Understanding capital gains
To figure out your profit, you need to know your stock’s cost basis. This is the amount you paid to purchase the stock, including any fees and commissions.
To illustrate, if you purchased stock for $5,000 and paid $25 in broker fees, your cost basis would be $5,025. If you sold the stock for $10,000, you would profit $4,975 — this number here is your taxable gain. Not the full $10,000 that you withdrew.
Reinvesting dividends – a smart move to save you money
Reinvesting dividends is a smart way to boost your cost basis, which can significantly lower your capital gains when you eventually sell.
This simple strategy effectively reduces the amount of tax you owe by increasing the "book value" of your investment over time.
Let’s say you buy a stock for $500 and reinvest a 6% dividend. After a year, your total investment grows to $530.
If you later sell the stock for $1,500, your taxable gain isn’t $1,000 — it’s:
$1,500 – $530 = $970
Calculating cost basis on your gifted or inherited stocks
Inheriting stocks or receiving securities as a gift can feel like a great bonus. But it’s not entirely free money; you still may owe capital gains tax when you sell, as it’s considered income.
For gifted stock, you typically use the original owner’s cost basis. Inherited stock generally uses the value on the date of death.
Short term vs. long term capital gains
How long you hold an asset determines your tax rate:
1 year or less: Taxed as ordinary income. Depending on your tax bracket, you’ll pay between 10% and 37%.
More than 1 year: Taxed at preferential rates of 0%, 15%, or 20%, depending on your total taxable income.
Pro-tip: investment containers
The best way to invest in anything is to first put your money in a TFSA or RRSP.
With a TFSA, you will pay zero tax on your withdrawals – yes, you heard that correctly, zero tax on withdrawals! Meaning you keep your entire profit, no money lost.
With an RRSP, you defer your taxes until withdrawal. Meaning your entire profit can be reinvested without hinderance. On top of that, when you “contribute” by adding money to your RRSP, your net income for that year is reduced by the amount that you add. Meaning you will get cash from the government to cover that investment.
To correctly do this:
First, open a TFSA or RRSP with a bank.
Add money to the account by making a deposit.
Select an investment with an advisor.
The money in that account will then be invested, and subject to the special tax laws discussed above.
Capital gains tax FAQ
How do I calculate cost basis when selling stock?
To calculate your cost basis, combine the original purchase price of the stock with any reinvested dividends and associated fees or commissions. This total represents your "true" investment in the asset for tax purposes.
To determine your taxable capital gains, simply subtract this total cost basis from your final selling price. This calculation ensures you only pay taxes on the actual profit earned, potentially lowering your overall tax liability.
How do I minimize tax on investment profits?
Report capital gains only on the profits that you made, and not on the entire sale price of stock.
How do I use a capital gains tax calculator for the sale of stocks?
To use a capital gains tax calculator, gather your stock’s cost basis, the final selling price, and your holding period. The tool then estimates your tax liability by determining if your gain is short-term or long-term based on your total taxable income.
A quick online search will show you plenty of calculators that you can use for this purpose.
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