How to File Stocks That Were Cashed

by C. Taylor

Selling stocks results in short-term or long-term capital gains for which taxes need be paid. Short-term capital gains, which are from stocks held for one year or less, are taxed as regular income. Long-term capital gains, which are from stocks held longer than one year, are taxed at a maximum rate of 15 percent. However, current losses and previous carryover losses may defray some gains to reduce your tax liability. When filing taxes for your cashed stocks, pay close attention to how you categorize the stocks; the Internal Revenue Service expects short-term and long-term stocks to be listed separately, and each of these categories is subdivided by how the sale and stock cost basis were reported.

1. Collect information regarding your cashed stocks. You will need the original cost basis, which is the original purchase price of your stocks minus any fees, sales prices, date acquired and date sold. This information, along with any 1099-B forms, are obtained from your investment broker.

2. Categorize the cashed stocks as short-term or long-term capital gains. Sort each category according to how the sale and cost basis were reported. Categorize the stocks as "A" if the sale was reported on form 1099-B, and the cost basis was reported to the IRS. Categorize the stocks as "B" if the sale was reported on form 1099-B, but the cost basis was not reported to the IRS. If neither scenario is true, categorize the stock as "C."

3. List the stock description, dates, sale price and cost basis on form 8849. You need a separate form for each of the "A," "B" or "C" categories, and each form is divided into short-term and long-term sections. Total short-term sales, basis and gain or loss in line 2, columns "e" through "g." Total long-term sales, basis and gain or loss in line 4, columns "e" through "g."

4. Enter total short-term category "A," "B" and "C" data in Part I of form 1040, Schedule D. Enter total long-term category "A," "B" and "C" data in Part II. Each section allows you a capital loss carryover from the previous year, which is subtracted from the current year's total. Add both section totals in line 16 of Part III. Carefully follow the guided directions in Schedule D to enter data that specifically apply to you.

5. Enter the total capital gains in form 1040, line 13 or form 1040NR, line 14. If you have a loss, enter the smaller of the loss total or $3,000. If you are married, but filing separately, enter the smaller of the loss total or $1,500. Complete form 1040 through line 43.

6. Work through the Schedule D Tax Worksheet in the form 1040, Schedule D instructions. This worksheet calculates the total tax liability and factors in the tax reduction for long-term capital gains and the taxable income from form 1040, line 43. Enter the figure from line 37 of the worksheet in form 1040, line 44.

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