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I know this is a truly silly question. I won't bother apologizing. The Fool is here to educate me; that's my motto. I'll just ask it quickly and begone.

I own no stocks and intend not to until I understand well and truly all the plusses and minuses. My only investment experience is with Index funds in my 401K. Here's a minus to owning stocks that confuses me.

Promise not to laugh.

I buy stock XYZ on January 1 at price of $P. I hold onto it FOREVER. That's right, I never sell it. Further, it isn't the kind of stock that pays NO dividends.

Do I have to pay any taxes at the end of the first year of owning it simply because it increased in value, i.e. $P changed to, say, $(P*1.2) by December?

In other words, do I only pay taxes when I sell it and therefore incurr a (long|medium|short) term capital gains tax? Or do I just have to pay taxes every year because it's gone up in value. This seems unlikely to me since it means I get taxed on the profit twice.
But then, tax laws have never made sense to me so you can see where I might be confused.

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