Stock Markets Exposed

Stock trading and tax consequences?

I recently started investing in the stock market. I initially started with the idea that I'd invest in 5 diversified ETF's or Index Funds and just let it sit . . . . .the idea being I wouldn't incur any tax penalties for a few years. I got tired of waiting for those funds to get moving, so I sold those shares and am now invested in ~15 fairly diversified stocks and have been actively trading for profit (and losses, of course). If things continue the way they are, I will hopefully have a nice profit . . . I'm just concerned that taxes are going to kill me. In the books I've read, there are two prominant themes: 1) Taxes + Fund Expenses + Trading Commissions will erode any profits you may have made trading. Just stay invested in a few diversified index funds and rebalance once per year. or 2) If you're paying taxes, it's because you're making money. It's not a bad thing to have to pay taxes. Trade away. Any thoughts/advice? Any good books on stock trading and taxes?

Public Comments

1. You will pay capital gains tax on any "profits" you make through selling stocks or ETFs. You can also, with limits, deduct losses. It's that simple.
2. that's all true. but just think of all those people who made a killing in the tech bubble (on paper). and then they didn't want to sell because they didn't want to have to pay taxes. and then they lost everything. but, you do need to take tax consequences and transactions costs when making an investment decision.
3. 2 fully fund your tax deferred accounts and trade there, no taxes.