Investment Taxes
Tax misc
Reporting your capital gains (or losses)

Taxes » Reporting Your Capital Gains (Or Losses)

You survived a turbulent stock market, making a little profit on a couple of stocks and dumping some dogs just in time. Well, the ride isn't over yet. Buckle up and get ready to report your transactions to the Internal Revenue Service.

If you sold a stock or other property, regardless of whether you made or lost money on it, you have to file Schedule D. This two-page form, with all its sections, columns and special computations, looks daunting and it certainly can be.

Your extra work, however, will likely be rewarded by tax savings. If you lost money, this form will help you use those losses to offset any gains or a portion of your ordinary income. And if you profited from your transactions, it will help ensure you don't overpay Uncle Sam for your gains.

Timing is everything

When you make money on a sale, you must report the transaction, first on Form 8949 and then transferring the info to Schedule D, using some basic information, including when you bought the asset and when you sold it. This is critical because how long you hold the property determines its tax rate.

If you owned the security for a year or less, any gain will cost you more in taxes. These short-term assets are taxed at the same rate as your regular income, which could be as high as 35 percent on your 2011 tax return. Short-term sales are reported in Part 1 of the forms.

However, if you held the property for 366 days or more, it's a long-term asset and is eligible for a lower capital gains tax rate -- 15 percent or even zero percent, depending upon your income level. Sales of these assets are reported in Part 2 of the forms.

Detailing your transactions

Once you determine whether your gain or loss is short-term or long-term, it's time to enter the transaction specifics in the appropriate section of Form 8949. All transactions require the same information, entered in either Part 1 (short term) or Part 2 (long term), in the appropriate alphabetically designated column. For most transactions, you'll complete:

(a) The name or description of the asset you sold.
(c) When you obtained it.
(d) When you sold it.
(e) What price you sold it for.
(f) The asset's cost or other basis.

Total your entries on Form 8949 and then transfer the information to the appropriate short-term or long-term sections of Schedule D. On that tax schedule you'll subtract your basis from the sales price to arrive at your capital gain or loss.


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