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UrbanizedIdiot wrote:

I'm looking at investing in stocks for the first time, and there is one thing I don't understand:

Say that I have purchased stock and the value of the stocks goes up $10,000 in a year. This
$10,000 comes entirely from increased value of the stock and not from dividends or interest. I hold
onto all of the shares. At tax time, assuming a 28% tax, does this mean that I have an extra $2800
to pay the government even though this $10,000 exists only on paper and is not available in a cash
form for me to pay taxes, etc? (I don't understand the relationship between stock appreciation value
and taxable income.)
Thanks.

=======================================================

Until you actually SELL the stock, these paper gains are just that - paper gains. They have no tax effect. That you don't have the proceeds yet to pay the tax is one of the rationale for this rule. The other is that is would be administratively infeasible to require every taxpayer to do this.

Andrew
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