How to Report Stock Trades
Successful stock trading is the result of hard work and skill. It's important that you also learn how to report stock trades. For traders that trade stock positions for less than a year at a time, you will need to report the results quarterly and in summation at the end of the year. Fortunately, the IRS has a simple process.
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Instructions
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Record the number of shares you bought or sold, as well as the net value of the stock, when you take a new position. Calculate the net average result. For example, you place a buy order for a 1,000 shares of ABC stock at $50 a share, your broker only has 500 shares at $50 and 500 shares at $52. The average is $51 for the whole order ($51,000 for the 1,000 share position). Record a buy order of ABC at $51,000 on the date the transaction took place.
Record liquidation the same way. From the previous example, if you sell ABC stock 30 days later on a sell order of 1,000 shares at an average price of $61, record a sales order for $61,000. Record the net result, the difference between what you paid and what you sold for. In this example, your net was $10,000.
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Report all closed stock positions within the quarter and file quarterly taxes with your accountant.
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Open a separate bank account for the sole purpose of paying your quarterly taxes. Almost all banks can set up a separate bank account for self-employed individuals or those who have part-time businesses to make tax deposits into the account. These payments are then wired to the IRS.
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Give all 1099-MISC forms and your trade log to your accountant. If you trade out of an LLC or a S Corporation, you will receive a K-1, which should be filed with your annual corporate taxes with your accountant.
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File your taxes for your stock trading profits every year. Use Schedule C to report your stock trade profits/losses and to write off any margin interest you may have accrued as well as any data service and broker's commissions.
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Tips & Warnings
An Excel spreadsheet makes it easy to input the numbers relating to your stock trading. At the end of the quarter or the year, you can print it out for your records and for your accountant.
There are some tax software programs that can help you assess what your taxes should be, but you can also go to your local library or post office and pick up "IRS Publication 550: Special Rules for Traders in Securities."
It's important to report your quarterly results and to do so accurately to avoid penalties. If you wait until the end of the year, then it's likely that the IRS will penalize you for not paying quarterly taxes.
