Breaking down the trade
This is one of the simplest stock trade scenarios: a 50% gain on a straightforward buy-and-hold. You invested $5,000 and received $7,500 back — a clean $2,500 profit at $25 per share.
How taxes affect this profit
| Holding Period | Tax Rate (24% bracket) | Tax Owed | After-Tax Profit |
|---|---|---|---|
| Under 1 year (short-term) | 24% | $600 | $1,900 |
| Over 1 year (long-term) | 15% | $375 | $2,125 |
The difference between short-term and long-term capital gains is $225 on this trade. For larger positions, the tax savings from holding over a year become even more significant.
What if commissions apply?
With commission-free brokers (Fidelity, Schwab, Robinhood), this trade costs nothing extra. With a traditional broker charging $4.95 per trade, total commissions = $9.90, reducing net profit to $2,490.10. On a $5,000 trade, that's a 0.2% fee drag — minimal but not zero.