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If I buy a stock for say $1 and that stock goes up to $2, can I sell my initial investment being $1 and then buy back into the same stock when it goes back down to $1 over and over only using my initial investment to accumulate shares without paying any tax? I hope this makes sense.

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    depends on your legislation, where are you located? – Christian Sep 7 '16 at 9:10
  • Can you also elaborate? You buy 1 share at $1, it goes up to $2. You sell this and get a profit of $1. You hold this till the share drop backs to $1, you buy this back. You wait till it goes down to $2 and sell it again. Now a profit of $2 and wait for it to go down to $1 and now buy 2 shares. When it reaches $2 you sell both for $4 and repeat? – Dheer Sep 7 '16 at 9:21
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    Why did you use the tag "shorting-securities"? Your title and question has nothing to do with shorting. – JoeTaxpayer Sep 7 '16 at 14:10
  • This is speculation but the tag was probably used in reference to short term trades – homer150mw Sep 7 '16 at 14:43
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Elaborating on kelsham's answer:

You buy 100 shares XYZ at $1, for a total cost of $100 plus commissions.

You sell 100 shares XYZ at $2, for a total income of $200 minus commissions.

Exclusive of commissions, your capital gain is $100 for this trade, and you will pay taxes on that. Even if you proceed to buy 200 shares XYZ at $1, reinvesting all your income from the sale, you still owe taxes on that $100 gain. The IRS has met this trick before.

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Unfortunately, we don't know your country, but I'd guess "Not US" with the hint being your use of the word bugger in a comment.

Realized profits are taxed by all tax authorities I'm aware of, i.e. the Tax Man in every country. Annually, so that you can let the profits run during the year, and offset by the losses during that year.

The exception is within a qualified retirement account. Many countries offer accounts that will let you do just what you're suggesting, start with XXX number of Quatloos in your account, trade for decades, and only take the tax hit on withdrawal. In some cases there's an opportunity to fund the account post tax, and never pay tax again. But to repeat, this is with a retirement account, not the usual trading accounts.

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    Note that not all tax protected accounts are exclusively retirement accounts. TFSAs in Canada are post tax accounts that let you invest without paying any tax on the investment income. Since the amount you withdraw from a TFSA becomes contribution room the next year, I recommend that young people, like myself, saving for a house, wedding, or whatever else, do so with a conservative portfolio in their TFSA. When they withdraw they will have also permanently increased their maximum contribution room for when they are using the account for saving for retirement later. – Paul Sep 7 '16 at 17:28
  • I appreciate the education on the options my friends to the north have for tax favored investing. – JoeTaxpayer Sep 7 '16 at 17:32
  • Even dumping student loans as soon as you receive them into a liquid TFSA (taking care not to exceed contribution limits), like a standard bank savings account, can be a good idea in my opinion. With a decent bank you can also set your monthly budget and have automatic withdrawals from the TFSA to your chequing or everyday savings account, to limit your spending according to the amount you allot yourself. By the time you finish a degree you will likely have increased your TFSA contribution room by an extra $1000. – Paul Sep 7 '16 at 17:32
  • That could quickly become an extra $1000*2^200. – Paul Sep 7 '16 at 17:43
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Sorry, no, any time you sell for a profit you owe tax.

  • What I'm saying is that I am only using my initial $1 and leaving profit in the account and then buying back in when the share price goes down. So in saying that, I have not drawn on any profits and only using the $1 that I started with. Or doesn't it work that way? – Roger Sep 7 '16 at 9:26
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    Tax don't work that way. If you sell 1/2 of the shares for 2$, you get only your 1$ back, but that part of the share had originally only cost you 1/2 $, so you owe taxes on the 1/2 $. Every sale is compared to the same number of shares you bought, not the amount you paid. – Aganju Sep 7 '16 at 11:04
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    And I was about to answer "yes. If you are in the US, do this in your Roth IRA. It's a great way to turn $1000 into 2^200 * $1000 after just 200 trades. – JoeTaxpayer Sep 7 '16 at 14:07
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    My snarky comment should be read "If you can make anything amazing happen, do it in your Roth." – JoeTaxpayer Sep 7 '16 at 14:16
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    Wrong, US tax law allows offsetting taxable cap gains from one stock with cap loss from another, even one in the past year. – Superbest Sep 9 '16 at 0:57
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If you buy for $1 and sell $1 when the price goes to $2, you would have sold only half of your initial investment. So your investment would now be worth $2 and you sell $1 leaving $1 still in the market.

This means you would have sold half your initial investment, making a profit of $0.50 on this half of your initial investment, and having to pay CGT on this amount.

  • Ok, so if I only draw (sell) the dollar amount of my initial outlay and leave any profits in the account I still have to pay CGT even though I haven't drawn on any profits? That's a bugger. What I wanted to do ID accumulate shares using my initial funds and not draw on any profits and in doing so avoid paying tax. – Roger Sep 7 '16 at 12:35
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    You have drawn profits, proportionally. You don't get to redefine that. What you wanted to do, you can't. – keshlam Sep 7 '16 at 14:08
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    @Roger - you buy and sell shares. If you buy 100 shares and it doubles in price and you want to take out your initial investment and leave your winning, you need to sell 50 of your shares. So even though you think you have taken out your initial deposit and left your winnings in the pot, you have actually sold half your shares to get your initial deposit out. So what has actually happened is that you have taken out half your initial investment and half your profits, and this is how it gets treated for tax. – Victor Sep 8 '16 at 4:32
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I think what you're asking is,

Can I buy 1000 shares of the stock at $1. For $1000.

it goes up to $2, then sell 500 shares of the stock with proceeds of $1000, now having my original $1000 out of it, and still owning 500 shares.

And that not create a taxable event. Since all I did was take my cost basis back out, and didn't collect any gains.

And then I want to repeat that over and over.

Nope, not in the USA anyway. Each sale is a separate taxable event. The first sale will have proceeds of $1000 and a cost basis of $500, with $500 of capital gains, and taxes owed at the time of that sale.

The remaining stock will have a cost basis of $500 and proceeds of whatever you sell it for in the future.

The next batch of stock will have a cost basis of whatever you pay for it.

The only thing that works anything like the way you're thinking, is a Roth IRA... You can put your cost basis in, pull it back out, and put it back in again, all tax free. But every time your cost basis cycles in, that counts towed your contribution limits unless you do it fast enough to call it a rollover.

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No, you can not cheat the IRS. This question is also based on the assumption that the stock will return to $1 which isn't always a safe assumption and that it will continue to cycle like that repeatedly which is also likely a false assumption.

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