STock Trading Taxes & Your Tax Returns
The Stock Market:
The most well-known market.
Whether you buy and sell stocks, reap the benefits of dividends, or take your chances with options trading, the stock market provides you with endless possibilities. Along with your stock market activity, comes the responsibility of reporting these activities on your tax return. Your stock trading taxes will depend on the nature of your market involvement.
Things you must know for tax purposes
Depending on the type of activity you partake in when trading or investing in the stock market, there may be different ways in which these activities are reflected on your tax return. For example, when buying and selling stocks or trading equity options, you will be reporting either long-term or short-term capital gains or capital loses. Your tax treatment will differ if you are involved in non-equity options involving futures, currencies, commodities, and broad-based equity indices. In these cases, your activity in the market will fall under Section 1256 of the Internal Revenue Code. Section 1256 requires that such activity shall be taxed with a 60/40 split. This means that 60% is taxed at the long-term capital tax rates and the remaining 40% will be taxed at the short-term capital tax rates.
Here are just a few examples of things you must consider when filing your tax return:
Short-term vs. Long-term Gains & Losses
With default capital gains and losses treatment, your trading activity must be divided between your short-term capital gains & losses and your long-term capital gains & losses.
Did You Receive Dividends?
If you did, you should have more than likely received a 1099-DIV. Those dividends will be reflected in different locations, depending on the amount of dividend income received.
Did You Hold §1256 Options Contracts Into The New Year?
If you did, you may need to report any unrealized gain(s) or loss(es) on your tax return.
Do You Have Any Losses To Carry Over?
If you had any capital losses from previous years that exceed the maximum deduction of $3,000, you may have losses to carry-over to your current tax return.
Trader Tax Status & §475 MTM
Did you elect & qualify for Trader Tax Status? If the answer is yes to both, did you elect Section 475 MTM accounting by the deadline imposed? These elections result in different procedures to file.
Any Wash Sales Apply?
Did you sell a security at a loss but purchased the same or similar security 30 days before or after? Then you must account for this on your tax return.
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There are many factors which contribute to how your stock market activity for the year will be treated on your tax return.
With a wide array of of activities a trader or investor may partake it, it is important that your stock market activity is accurately reported on your tax return each year.
Questions? Contact us