Blog | Best Investments for Beginners

Once you know what stocks are and you know how to invest and choose the right company stock to buy, you need to make a purchase. You might be purchasing shares of stock in several companies or just one. Either way, how do you buy stocks? How do you make the actual purchase?

Stocks aren’t sold at a store, and you can’t buy stock certificates anymore, unless you purchase them through a program that sells one share for gifting purposes. As an investor, that’s not what you’re looking for. You need a brokerage account.

What is a Broker?

A broker is the person that buys stock. They need to be licensed in order to buy stock an exchange.

A stock brokerage firm is a company that employs stock brokers who make the physical purchases at the stock exchange. They do all the hard work for you. They find someone who wants to buy or sell shares of what you’re selling or trying to buy. They try to get you the best price.

Years ago, you had to call up your broker every time you wanted to make a trade. Today, with the internet, you can set up an account quickly and easily online and place your orders electronically. It’s a lot faster, easier, and more convenient.

Full Service or Discount Broker?

A full service broker is one that offers many services such as stock advice and other help. They cost a lot more than discount brokers. If you want nothing to do with your investments other than handing over your money, and you don’t care how much it costs, a full service broker can work out for you. Even if you want to know what’s going on with your money, they can help.

If you want to save money and you’re able and willing to make your own stock purchase decisions, a discount broker is the way to go. They are convenient and offer no bells and whistles. You decide what you want, place the order, and manage your portfolio online. The fees are usually a tiny percentage of what full service brokers charge.

Are you looking for a good broker? Click here for some of the top discount brokers to choose from. Pick the one that fits your needs, set up an account, and start investing.

Making the actual stock purchases is actually the easy part. It’s finding the right ones to buy that takes more time and effort. Don’t worry about it. You’ll get a hang of it soon enough.

As a stock investor, you will have good days and not so good days. During a poor economy or a stock market crash, it is possible to end up with a stock loss. Overall, this is frustrating and disappointing. However, there may be tax advantages to losses in the stock market that can help ease the overall burden. Can you deduct stock losses?

What is a Stock Loss?

When you sell shares of stock, you have either a loss, gain, or break even. If you sell shares for more than you paid, it’s a gain. If you sell shares for less than you paid, it’s a loss.

If you have a stock gain, you must report it as income. A stock loss is only realized when you sell your shares. Even if the value has gone down but you haven’t sold your shares, it’s not a loss. The same goes for gains. You don’t report price increases as income unless they are gains from selling shares.

Can You Deduct Stock Losses?

First, you need to determine if you have a net loss. For example, let’s say you sell 100 shares of stock A with a loss of $5 per share for a total of $500. This is a loss, however, if you also sold 50 shares of Stock B with a gain of $15 per share for a total of $750, the initial loss if offset. Now you will report a gain of $250. The loss is still factored into your tax burden, it just needs to go against any other gains first.

After offsetting any capital gains, if there are any more losses, you can use these losses reduce ordinary income up to $3,000. For example, let’s say you have a total stock loss of $2,000 for the year and you’re taxable income is $6,000. You can deduct that $2,000 from your $6,000 taxable income.

This is a benefit for many taxpayers because the tax rate paid on gains is usually less than the tax rate paid on ordinary income. However, with losses, the savings comes with ordinary income. Let’s use the above example. If you’re in the 27% tax bracket, you’re saving 27% of that $2,000, whereas if it was a long-term gain, you’d pay 15%.

It’s good on both ends. You only have to pay a maximum of 15% on long-term capital gains, but you get a bigger tax break if you have losses. This benefit can help ease the burden and frustration that comes with stock losses.

What if Your Losses are More than $3,000?

Don’t worry about your losses exceeding the $3,000. They won’t go to waste. If losses exceed this certain amount, they can be carried over year to year. This way, they aren’t wasted. For example, if you’re are unfortunate enough to incur $9,000 in stock losses, you can carry the balance over each year until it’s used up.

Reporting Capital Gains vs Losses

The rate at which capital gains are reported varies based on whether they are long-term or short-term gains. This doesn’t matter with losses. Losses are deducted from gains and ordinary income respectively, regardless of the tax rate. As we mentioned above, losses have a greater tax savings advantage while long-term gains have a lower tax rate than regular income.

As a stock investor, your gains and losses have tax advantages. This is a great way to encourage yourself to invest more and earn more money with the stock market.

Investing basics for new investors.

How do You Buy Stocks?

Can I Deduct Stock Losses?