Every time you sell stock, you rack up a gain or loss that affects your federal income tax. When you add up all your stock gains and losses, you end up with your net gain or loss for both short-term (held for less than one year) and long-term holdings (held for one year or more).
You must report all stock sales when filing your income taxes. However, you don't have to report stock sales that occur in a qualified retirement account like an IRA or 401(k).
Minimum Capital Gains to Report
The capital gains reporting threshold is simple to understand, in that you must report all capital sales no matter how small the gain or loss. Capital includes stocks, bonds and other assets. Your broker will send you a copy of IRS Form 1099-B for each stock sale. The form identifies the stock, the date and cost for the purchase and the date and proceeds from the sale. The form will also indicate whether the holding period was short or long term. When filing your taxes, you gather all your 1099-B forms for the year, divide them between short- and long-term holding periods and enter the information onto the capital gains tax form, IRS Form 8949. You’ll end up with net amounts for short- and long-term capital gains/losses, which you transfer to Schedule D of Form 1040. These net amounts determine the amount of capital gains tax you’ll have to pay for the year. If you have a capital loss, you can apply up to $3,000 of the loss to reduce ordinary income. Any excess capital losses can be carried forward and applied in future years.
You must report all sales of capital assets, except those within a qualified retirement account. A special rule applies if the asset is a collectible, such as precious metals, jewelry, antiques and art. The 1099-B has a checkbox that identifies the asset as a collectible. The long-term capital gains tax on profits from the sale of collectibles is fixed at 28 percent, higher than the long-term capital gains tax on financial assets like stock.
2018 Tax Law
Short-term capital gains are taxed at the same rate as ordinary income. However the tax rates on long-term capital gains are reduced. If your income is no greater than $38,600, your long-term capital gains rate is 0 percent. Incomes from $38,601 to $425,800 will generate a 15 percent long-term capital gains rate, while higher incomes trigger the maximum rate of 20 percent.
2017 Tax Law
The reporting requirements for stock sales are identical for 2017 and 2018. However, the income brackets are different. Ordinary income tax brackets, which form the basis for short-term capital gains tax, were higher in 2017. For long-term capital gains, the 0 percent bracket applied to income up to $37,950, the 15 percent bracket topped out at $418,400, and the 20 percent bracket covered higher income levels.
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