How to Report Stock Sales
An important part of investing is keeping accurate records of purchase and sale prices. For starters, this information will help in your overall investment planning, as you can see how your investments are performing. However, once a year, you must report your investment transactions to the IRS, and failure to do so properly can result in severe penalties. Keep all of your tax records handy for when you need to report stock sales.
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Instructions
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Instructions
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Assemble all of your tax documents. If you made any stock sales during the year, you will receive a 1099 at the end of the year listing the proceeds of those sales. However, the 1099 does not compute your capital gains or losses for you, it merely lists your sales proceeds. Either you or your brokerage firm should have a record of the purchase prices of your individual securities, and you will need this information to perform your gain/loss calculations.
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Complete Schedule D of IRS Form 1040. On this form, you will list all of your stock transactions for the year. Write down the proceeds from all of your stock sales, as found on your Form 1099, and also list the dates and amounts of the purchases. Follow the instructions on the form to compute whether you have a gain or loss on your transactions. Transfer this figure to line 13 of your Form 1040. An important distinction that you will encounter on Schedule D is the difference between short-term and long-term gains (and losses). A short-term gain is defined as one held for less than a year, while a long-term gain refers to holding periods of one year or longer. This matters because short-term gains are taxed at your regular income tax rate, while long-term gains are taxed at a usually lower capital-gains rate (15 percent for most tax filers in 2009).
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Use your losses. If you have performed your calculations for Schedule D and they show a loss, this is the time to take advantage of your misfortune. Generally speaking, you can apply capital losses you have taken to capital gains, a calculation you will have encountered on Schedule D. If you have taken more capital losses than you can offset by gains in one tax year, the IRS allows you to carry those losses over to future years and apply them to future capital gains. This strategy often proves invaluable when a good year in the stock market follows a poor one.
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Keep records. In most cases, your taxes are subject to audit by the IRS for three tax years after filing--longer if fraud is involved. In order to prevent possible future headaches, keep all of your tax records--your 1099s, gain/loss information, and Forms 1040--on file for at least three tax years.
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