An online broker might charge a $10 commission to execute a stock trade. Your cost to buy 100 shares of a $50 stock would be $5,000 plus $10.

Trade commissions reduce before-tax gain

The commission would amount to only 0.2% of the principal invested. A few months later, you sell the stock for $60. As before, you would incur a $10 commission.

After subtracting the commission costs, you net $980 before taxes. The commission has reduced your net gain by a full 2 percent.

Short-term capital gains tax far exceeds commission cost

A short-term gain brings on a tax that lowers its return by 35 percent if you are subject to the top marginal tax rate. The capital gains tax on a $980 short-term gain would total $343.

This tax cost is 17 times greater than the round-trip commissions cost.

Long-term tax rate still takes a big bite

Had you held the stock more than one year before selling, the capital gain would be long-term. Such a long-term gain is taxed at only 15 percent.

For a $980 long-term gain, the capital gains tax would total $147. Waiting to realize a long-term capital gain results in a tax cost more than 7 times that of the trade commissions.

Delay capital gains tax by delaying a stock sale

A trivial way to delay the tax cost is to delay selling the stock. While the gain remains unrealized, it incurs no costs. Unless your asset allocation plan dictates that you dispose of the position, holding an unrealized gain is the best method for lowering your investment costs in the current year.

A dollar today is worth more than a dollar next year. Postponing the tax leaves you with more cash to invest now and discounts the tax cost in a future year.

Avoid the tax by offsetting the capital gain with a capital loss

Actually, capital gains tax is not calculated individually for each stock sale. If you must sell a stock with a short-term capital gain, you might look for another holding that has an unrealized short-term capital loss.

Selling another stock with a $1,000 short-term loss will more than offset the $980 short-term gain. This would leave you with zero net capital gains tax.

Rather than waiting until you have a gain that you want to realize, you may want to employ tax loss harvesting to recognize those losses as they arise. No investor sets out to lose money after buying a stock. Those who hold onto those losses when they could use them to offset gains miss a certain way to lower their tax.