Ready to tackle your investment gains and losses on your taxes? It’s easy! Use Form 8949. First, you get your Form 1099-B from your broker—packed with essential details about your asset sales.
Then, categorize your transactions into short-term (Part I) and long-term (Part II) on Form 8949.
Fill in the specifics of each transaction in the right columns, or if you prefer using totals from Form 1099-B, check the box, attach it, and add the necessary details.
Now, sum up the numbers, adding up columns for each form. Combine pluses and minuses in a column for the net amount in each category.
Time to transfer the totals to Schedule D (Form 1040), following the instructions.
You clip Form 8949 and Schedule D to your tax return. Add Form 1099-B, you rely on it too.
Ensure you hit the April 15 deadline, including any extensions if life gets hectic. This way, you report your investment transactions adequately.
- What Is Form 8949
- Use Form 1099-B Properly
- Fill Form 8949 Correctly
- Attach Form 8949 to Schedule D
- Report Important Details on Form 1040 or 1040-SR
Recap
1. What Is Form 8949?
Form 8949 is a tax document the IRS uses to report the sale of stocks, real estate, or collectibles. It’s your go-to for detailing each sale—date, description, money in, money out. If you get a Form 1099-B from your broker, or if you sell something that is not on Form 1099-B, you need to fill out Form 8949.
The totals from Form 8949 then go onto Schedule D, where you figure out if you make or lose money overall on your investments. For help filling out the form, check out the IRS website or other online resources.
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2. Use Form 1099-B Properly
Form 1099-B is a tax document brokers and barter exchanges use to report your cash, stock, or property transactions. It’s essential for capital assets like stocks and bonds. It details your stock sales, including the sale date, proceeds, cost basis, and adjustments like tax withholdings.
You use the information from Form 1099-B to fill out Form 8949 and Schedule D for reporting gains and losses and calculating taxes. Check for errors and contact your broker for corrections.
To complete Form 8949, group your transactions on a report basis and adjustments. Enter details like sale date, proceeds, cost basis, and adjustments. If using totals from Form 1099-B, mark the box and attach a copy to your return. Totals from Form 8949 go to Schedule D for calculating your overall gain or loss and tax liability.
If there are differences, check for incorrect basis information, different wash sale rules, or corporate actions affecting stock. Correct any errors on Form 8949, using codes in column (f) to explain adjustments.
Remember, the Instructions for Form 8949 have a list of codes and guidance for making adjustments.
Examples of how to report common types of stock sales and exchanges are:
Short-term or long-term: If you own the stock for a year or less, it’s short-term (report in Part I of Form 8949). If you hold it for more than a year, it’s long-term (report in Part II).
Covered or Noncovered: Covered means the broker reports to the IRS; noncovered means your broker makes no report of it on Form 1099-B. Fill in the right box on Form 8949. For covered transactions, use the basis from Form 1099-B. For noncovered, use your basis and provide proof.
Wash sales: If you sell a stock at a loss and buy the same or similar stock within 30 days, it’s a wash sale. You can’t deduct the loss, but add it to the new stock’s basis. If your broker reports it, mark it on Form 8949. If not, do it yourself and explain why.
Corporate actions: Events like stock splits or mergers can affect your stock’s value. Adjust the basis or proceeds on Form 8949 accordingly. For instance, if you get a non-taxable stock dividend, split your basis between old and new shares. If you get cash for fractional shares, treat it as proceeds and reduce your basis.
Remember, if in doubt, check IRS Publication 550 for more guidance.
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3. Fill Form 8949 Correctly
To fill out Form 8949 adequately, you need to:
- Determine if your stock sale is short-term (for a year or less) or long-term (for more than a year).
- Confirm if your transaction is covered (broker reports to the IRS) or noncovered (no broker report).
- Check for any adjustments or codes affecting your gain or loss, like corrections, wash sales, or market discounts.
- Tick the right box (A, B, C for short-term, D, E, F for long-term) owing to your transaction type and adjustments.
- Fill in Form 8949 columns:
- Describe the stock you sell.
- If you get a Form 1099-B and the Ordinary box has a check mark, put an “O” in this column.
- Date you acquire the stock.
- Date you sell it.
- Cost or basis – use the IRS-reported basis if available, otherwise, use your own and keep proof.
- Enter a code for any adjustments (check the instructions).
- Amount of adjustment (like wash sales or market discount).
- Calculate your gain or loss.
- Group your transactions using the box you select in Step 4. If you have different types (short-term and long-term), use a separate Form 8949 for each.
Keep it orderly and separate if you have covered and noncovered transactions or adjustments. For example, if you have short-term transactions with and without basis reporting, use two forms for Part I – one for each.
4. Attach Form 8949 to Schedule D
To attach Form 8949 to Schedule D, you:
- Fill out Form 8949 for each type of investment you sell (like stocks or real estate).
- Take the subtotals from each Form 8949 and fill in the corresponding lines of Schedule D. This helps you calculate your total gain or loss and figure out any taxes you owe.
- Attach both Form 8949 and Schedule D to your tax return. Don’t forget to include any Form 1099-B or substitute statements you use to fill out Form 8949. File your tax return latest on the due date, including extensions.
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5. Report Important Details on Form 1040 or 1040-SR
To take note of important details on Form 1040 or 1040-SR, make sure you:
- Fill out Schedule D to report gains or losses from selling things like stocks or real estate. Use Form 8949 to give details on each transaction.
- Put the total gain or loss from Schedule D on line 7 of Form 1040. This is your overall profit or loss for the year. If you lose money, you can deduct up to $3,000 from your other income.
- If you make a profit, you might pay tax at a special lower rate. Use the worksheets in the Form 1040 instructions to figure out how much tax you owe.
- Enter the tax from the worksheet on line 16 of Form 1040. This is your total tax, including income and capital gains. Subtract any credits or payments to determine if you get a refund or owe more.
In short, what you gain or lose affects your income, determines your tax rate, and influences your final tax amount.
Example:
You make $2,000 in short-term gains and lose $1,000 in the long term. No other income or deductions.
On Form 8949, list each transaction’s details and totals for short-term and long-term. Transfer subtotals to Schedule D, then follow its instructions to calculate net gains ($1,000). On Form 1040, report total income ($1,000), deduct standard deduction, leaving taxable income at $0. Your tax, payments, and refund equal $0.
Recap
When reporting your stock sales for taxes, Form 8949 is your go-to. It’s like the detailed breakdown of your gains and losses. You use a separate form for short-term and long-term transactions, and another if your broker sends you Form 1099-B.
Remember to give all the details – date, proceeds, basis, adjustments, and codes. Group your transactions smartly, and if you’re using totals from Form 1099-B, mark the checkbox.
Also, attach Form 8949, Schedule D, and your 1099-B to your tax return. This helps you avoid IRS issues and penalties and get all your deductions.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. . For comprehensive tax, legal or financial advice, always contact a qualified professional in your area. S’witty Kiwi assumes no liability for actions taken in reliance upon the information contained herein.
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