Any time you buy or sell a capital asset, such as a stock, you must report it to the Internal Revenue Service at tax time. If you record a gain, you'll owe taxes, while if you have a loss, you may be able to use it to reduce your taxes. At the end of the year, your financial services firm is required to send you a Form 1099-B itemizing your transactions. Since the IRS gets its own copy, failing to report your capital gains and losses on Schedule D could get you audited.
Review any Form 1099-B that you receive. The information on Form 1099-B will go directly to the IRS, so it is critical that the information is correct. Cross-reference with your own records, either on your brokerage statements or the trade confirmations you received at the time of your orders.
Categorize your capital gains and losses into short-term and long-term. Short-term gains, or those held for one year or less, are taxed at a different rate than long-term gains.
Complete Form 8949. Before you complete Schedule D, you'll have to list all of the information regarding your trades on Form 8949. You can usually get this information from Form 1099-B, but you might have to supply the information from your own records.
Transfer sales proceeds information from Form 8949 to Schedule D column E. Keep long-term and short-term transactions distinct. If box A of Form 8949 is checked, indicating the information is originally from Form 1099-B, transfer the information to line 1. If box B is checked, indicating the information is not from Form 1099-B, enter on line 2. If box C is checked, indicating an uncertain information source, enter on line 3.
Transfer cost information from Form 8949 to Schedule D column F. If box A of Form 8949 is checked, indicating the information is originally from Form 1099-B, transfer the information to line 8. If box B is checked, indicating the information is not from Form 1099-B, enter on line 9. If box C is checked, indicating an uncertain information source, enter on line 10.
Transfer cost adjustment information, if any, from Form 8949 to Schedule D, line G.
Combine columns E, F, and G into column H.
Transfer other capital gain and loss information as required. While most gain and loss information will come from Form 1099-B and your own records, other forms may require you to transfer information to Schedule D. For example, if you have a short-term gain from Form 6252, you'll have to transfer it to line 4 per IRS instructions for Schedule D.
Calculate your net short-term capital gain or loss. Add column H in lines 1 through 6 and enter on line 7.
Calculate your net long-term capital gain or loss. Add column H in lines 8 through 14 and enter on line 15.
Combine lines 7 and 15 and enter the result on line 16. This is your net capital gain.
Transfer gain and loss information to your Form 1040 as instructed by Schedule D. Depending on the calculation of your gain and loss, you may have to transfer the information to different parts of your tax return.
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