How to Sell Stocks: A Step-by-Step Process
Navigate the entire stock selling process with our comprehensive guide. Learn to prepare, execute, manage funds, and understand tax impacts confidently.
Selling stocks is an integral part of managing investments. Understanding the process of liquidating stock holdings is key. This includes knowing your holdings, how to place an order, the timeline for accessing funds, and tax implications.
Understanding Your Holdings and Order Types
Before selling stock, understand your holdings. This involves knowing the specific stocks, number of shares, and original cost basis. The cost basis is the original price paid for an asset, adjusted for corporate actions. Understanding your cost basis impacts profit or loss calculations and future tax implications. When selling stock, choose from different order types.
A market order instructs your broker to sell shares immediately at the best available price. This order prioritizes speed of execution. The final execution price might vary, especially in volatile markets.
A limit order specifies a minimum selling price. Your order executes only if the market price reaches your specified limit or higher. This provides price certainty, protecting profits or limiting losses. Your limit order may not be filled if the market price does not reach your limit.
Stop orders, like a stop-loss order, function as a risk management tool. A stop-loss order becomes a market order once the stock’s price falls to or below a predetermined stop price, helping limit potential losses. A stop-limit order becomes a limit order once the stop price is reached, ensuring sale only at or above a specified price. Choose an order type based on whether immediate execution or a specific price is your priority.
Executing the Sale Transaction
After determining which shares to sell and selecting an order type, execute the sale through your brokerage firm. The most common method is using your broker’s online portal or mobile application.
Log into your account. Navigate to the trading section, often labeled “Trade” or “Sell.” Select the stock and input the quantity of shares to sell. Choose your order type.
A review screen displays order details: stock symbol, quantity, order type, and estimated proceeds. Confirm the trade to submit the order for execution.
You can also execute a sale by contacting your brokerage firm directly via phone. This method is useful for technical issues or complex orders. Broker-assisted trades might incur higher commission fees.
Settlement and Accessing Funds
After a stock sale executes, the transaction enters a settlement period. For most stock transactions in the United States, the standard settlement cycle is T+1. This means the trade settles one business day after the transaction date, a rule effective May 28, 2024. For example, if you sell shares on a Monday, settlement occurs on Tuesday.
Once settled, sale proceeds are credited to your brokerage account. These funds are available for withdrawal or reinvestment. Accessing funds involves transferring them to an external bank account.
To withdraw funds, link your bank account to your brokerage account. Most firms offer electronic funds transfers (EFT), also known as ACH transfers. ACH transfers are usually free and take one to three business days to appear in your bank account.
Other withdrawal options include wire transfers, which are faster but involve a fee. Requesting a physical check is another option, though this can take several business days or weeks to arrive.
Tax Implications of Stock Sales
Selling stocks can result in a capital gain or loss, impacting your tax liability. A capital gain occurs when you sell shares for more than your adjusted cost basis. A capital loss results from selling shares for less than your adjusted cost basis.
Gains and losses are categorized by how long you held the investment. If held for one year or less, profit is a short-term capital gain, taxed at ordinary income rates. If held for more than one year, profit is a long-term capital gain, benefiting from preferential tax rates (0%, 15%, or 20% depending on income).
Your brokerage firm issues Form 1099-B by mid-February each year. This form reports stock sale details to you and the IRS, including proceeds, acquisition date, sale date, and often cost basis. This information is used for calculating your capital gains or losses and reporting them on IRS Form 8949 and Schedule D.
Be aware of the “wash sale” rule. This IRS rule prevents claiming a capital loss if you purchase a “substantially identical” security within 30 days before or after the sale date. This 61-day window disallows the loss for tax purposes. If a wash sale occurs, the disallowed loss is added to the cost basis of the newly acquired shares.
Accurate record-keeping of buy/sell dates and cost basis aids tax compliance. Consulting a qualified tax professional is advisable for personalized guidance.