Capital Gain on stocks

[cameronheyward]

Hi all,

I was watching this video -

At 8:44 mark, he talks about the tax breakdown for dividends vs capital gains.

Dividend - 6.39% tax

Capital Gains - 14.83% tax

10k dividend - $638 tax

10k capital gain - $247 tax

The stock went from 100k - 120k (20k capital gain).

Capital gain is $1,666 (Proportional amount of gains on $10,000)

$247 tax owing.

Just curious, does anyone know how he got the $1,666 figure as I'm trying to understand the breakdown?

Thanks

 

[maranathatech]

@cameronheyward Because when you sell 10k worth of shares, that 10k is not all gains. Out of the 120k current value of your shares, 83.33% (100 / 120) of what that is your initial investment. The other ~16.67% (20 / 120) is the gain.

So if you're selling 10k worth of shares, a similar ratio is used here. Around $8333 is from your initial investment. You wouldn't pay tax on money that you initially used to buy the shares. The remaining $1667 (or $1666 that he quoted) is the gain.

Edit: Fixed some wording for clarity.