Congratulations, you've made it. You have survived a stormy stock market. You were able to make a little profit on some stocks and get rid of some downers just in time. Here comes another shower. You have to report your transactions to the Internal Revenue Service.
If you sold a stock or other investment property, regardless of a profit or loss, you are required to file a Schedule D. This is a two page form that can be rather daunting.
There are only 22 lines, but it takes a lot of time to collect the data and fill it out. But you will be rewarded for your work in tax savings. If you have lost money, you can use your losses to offset any gains or a portion of your ordinary income. If you have profited, the form will help ensure that you don't overpay your taxes on the gains.
When you make money on a sale you have to report on the Schedule D some basic information. This information includes when you bought the asset and when you sold it. How long you hold the property will determine its tax rate.
If you only owned the security for a year or less, you will pay a higher tax rate. Short term assets are taxed at the same rate as ordinary income, which is often as high as 35% for some individuals.
If you've held the property for over a year it will be considered a long term asset. Long term assets are eligible for a lower capital gains tax rate that ranges from 5% to 15%, depending on your income level.
Specifically the information that you will need for each transaction is as follows:
(a) Name and Description of the asset sold
(b) When it was obtained
(c) When it was sold
(d) For what price it was sold
(e) The asset's cost or basis
(f) Your gain or loss.
You figure your gain or loss by subtracting your basis from the sales price. In addition to asking for your total gain and loss, you will also be asked for your total sales amounts. This allows an easy comparison of the sales amounts you enter with the figures that your broker or manger reports to the IRS.
There are lines on the Schedule D that probably won't apply to most taxpayers. If you find that you need to report installment sales, like-kind exchanges, or commodity straddles, then you should contact a professional tax advisor.
Any capital loss carryover you have from earlier years, plus any capital gains distributions earned, is required to be reported. If you only have distributions to report, you will not need to fill out a Schedule D, you can report these directly on a 1040 or 1040A return.
If your only capital gain is from the sale of your resident, you may not have to file a Schedule D. You must meet some basic residency requirements and your profit must not exceed $250,000. If you meet the qualifications, you don't even have to report it on any form.
Once you have given all of the short and long term transaction information, you will need to combine your asset sale details. If the total of all of your capital activities is negative, it may seem like poor investing, but it's good news for your taxes. Up to a certain limit, your loss can help to offset your regular income. This means that you are paying taxes on less income.
You are allowed to use your Schedule D to eliminate any capital gains. If you lost more than you gained, you will only be able to claim up to $3,000 of your losses in one year against your regular income. You can carry forward any larger losses to use against gains in future tax years and to write off any ordinary income. You can do so until you use up all of your loss. Your loss means that you can transfer the loss amount to a 1040 and continue your filing work there.
If you have a gain, you still have some paperwork to complete. You will have to fill out a separate Qualified Dividends and Capital Gain Tax Worksheet found in your 1040 instruction book. The worksheet will take you through 19 lines to break out each of your various types of gain income and figure the correct taxation for each. Make sure that you have figured your 1040 taxable income amount before you begin this worksheet, because you have to have that figure to start with.
Now add, subtract, multiply and have fun.
Don't ignore the need to file a Schedule D. If you sold stock or other property, the IRS will receive a copy of any tax statement that your broker sent to you. They are looking to make sure that you file your gain or loss.
Usually, your work will benefit you in tax advantages. Regular income tax rates are often twice that levied on long term capital gains. By filing a Schedule D, you may find that your tax bill is less than if you would have used the gains as ordinary income.
Martin Lukac (http://www.MartinLukac.com), represents http://www.RateEmpire.com and http://www.1AmericanFinancial.com, a finance web-company specializing in real estate/mortgage market. We specialize in daily updates, rate predictions, mortgage rates and more. Find low home loan mortgage interest rates from hundreds of mortgage companies!