• The stock market is a great way to make money, and selling stocks can be extremely exciting. However, if you do make money in the market, you might have some questions about your earnings. Do you have to pay taxes on them? How do you report that money to the government? There are some basic tax rules that you should know, if you're selling and buying stocks.
  
  

Wash Sale Rule

• The wash sale rule is an important rule on stock sales. The wash sale rule sets forth certain conditions on using losses to offset gains. The wash sale rule conditions state that, if within 30 days you reacquire substantially identical shares, the purchase "washes out" the sale. These 30 days are defined as 30 days after you sell for a loss, or 30 days before you sell for a loss. For example, you cannot sell a stock at a loss, simply to avoid paying taxes on your gains.
  
  

Offsetting Losses

• A loss can be used, however, to offset gains for the year in your taxes if it is done properly. If you bought a stock at $10,000 three years ago, and this year you sell it for $5,000, this qualifies as a tax loss of $5,000. This can be used to offset any gains that you have made in the market for the year. If you made $10,000 in the stock market but lost the $5,000 discussed above, you could report only $5,000 in gains.
  
  

Losses and Gains

• If your losses exceed your gains, the rules are slightly different. Consider the following situation: You only made $2,000 in stocks this year and lost $6,000. As an independent, you can currently claim up to $3,000 in losses that exceed your gains. If you file a joint return with a spouse, you can each claim $1,500 in losses exceeding gains. In the situation above, although you lost $4,000, you can only claim a $3,000 net loss. However, you can carry forward net losses---that extra $1,000 could be claimed next year. This is called a "carry forward."