How to Declare Taxes on Stocks

You have to use Form 1040 to report taxes on stocks.

You have to use Form 1040 to report taxes on stocks.

If you’ve made money investing in stocks, the Internal Revenue Service wants you to share the good news – and a portion of your profits – on your tax return. If you’ve got losses, the IRS will even sympathize with you a little bit by allowing you to deduct at least a portion of the losses from your taxable income. When filing your taxes, you have to file a few extra forms to meet your reporting obligations.

Divide your stock trades into short-term and long-term sales. Short-term sales refer to stock you held for one year or less when you sold it. Long-term sales refer to stock you held for more than one year when you sold it.

Complete Part I of Form 8949 to report short-term gains and losses. Include the name of the stock, when you bought and sold it, your cost basis and your selling price. However, you have to complete a separate Part I for each of the following categories: transactions documented with a Form 1099-B that includes your basis for the stock, transactions documented with a Form 1099-B that does not include your basis and transactions that don’t fall into the first two categories. If you only have transactions that fall into one category, you can report them all on the same Part I. However, if you have a few transactions in each category, you need to complete three Part Is.

Complete Part II of Form 8949 to report long-term gains and losses. On the form, you need to include the name of the stock, when you bought and sold it, your basis and your selling price. However, you have to complete a separate Part II for each of the following categories: transactions documented with a Form 1099-B that includes your basis for the stock, transactions documented with a Form 1099-B that does not include your basis and transactions that don’t fall into the first two categories. If you only have transactions that fall into one category, you can report them all on the same Part II.

Copy the totals from Form 8949 to Schedule D and figure your net gains and losses. First you figure your net short-term gain or loss with Part I and then you figure your net long-term gain in Part II.

Copy your net gain or loss to Line 13 of Form 1040. If you have a net loss, you’re limited to deducting $3,000. If you’re married filing separately, the limit is $1,500 per spouse. If you have a loss, enter the loss with parentheses around the loss amount. For example, a $2,300 loss would be entered on Line 13 as (2,300).

Items you will need

  • IRS Form 8949
  • IRS Schedule D
  • IRS Form 1040

Tip

  • Your cost basis is the stock's original value, plus commissions you paid, adjusted for stock dividends and stock splits.

Photo Credits

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