When you sell stocks, your broker issues IRS Form 1099-B, which summarizes your annual transactions. Obviously, you don't pay taxes on stock losses, but you do have to report all stock transactions, both losses and gains, on IRS Form 8949. Failure to include transactions, even if they were losses, would raise concerns with the IRS.
Any kind of stock transaction – even where you lost money – requires reporting on IRS Form 8949. You'll later transfer that form's figures to your Schedule D.
Reporting on Form 8949
You must fill out IRS Form 8949 to provide details about your stock sales. Include the original date of purchase, the sale date and the amount you gained or lost. Enter stocks you held for one year or less into the first section of the form. Enter stocks you held for more than one year into the second section of the form.
Stocks held for more than one year incur the lower long-term capital gains tax rate; stocks held for a year or less incur the short-term capital gains rate, which is the same as the taxable rate on ordinary income. Even if you lost money, you must divide the stocks according to how long you held them, because the IRS will treat those losses as either short-term or long-term_._You can use your losses to offset your gains, thereby reducing the tax you owe. Short-term losses offset short-term gains, and long-term losses offset long-term gains, so you'll need to know the difference.
Transferring Data to Schedule D
You need to transfer your figures from Form 8949 to Schedule D. You should not list your losses separately from your gains. Simply place parentheses around losses to indicate that the figure is negative. Total the column by adding in the positive figures and subtracting the negative figures; this resulting figure indicates your total loss or gain.
Capital Loss Carryover
You can deduct up to $3,000 in losses off or your income for any given tax year as of 2019. You can apply the remaining losses to coming years when you file your returns for those years. Losses retain their original short-term or long-term status when you carry them over to coming years, so you will save at the tax rate assigned to each type of loss. You can claim the losses each year until you have used up the total amount you originally lost.
Stock Transaction Recordkeeping
You need to know your cost basis. That is the price you originally paid for each stock. Nowadays, most brokers, banks and mutual funds include your cost basis on statements. However, you may want to keep your own records for verification purposes.
You'll need to know the date of each purchase so that when you sell it, you know if it qualifies as long-term or short-term. If you buy and sell many stocks, trying to reconstruct the purchase dates on all of them at the end of the year can be daunting. Instead, note this information in a spreadsheet or notebook at the time of the transaction. The IRS requires this information, so make sure you have accurate records.
Checking for Matching Amounts
You should check to make sure that the figures on your 1099-B, Form 8949 and Schedule D match. The IRS will perform this check, so you should too. This helps catch any math errors or inadvertent omissions so that your tax return won’t raise any red flags with the IRS.
Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.