A:

If you dispose of securities during the tax year, the profit or losses from the transaction are either capital gains or losses. If you held the asset for more than one year, the gain/loss is treated as long-term gains/losses. If you held the assets for up to one year, the gain/loss is treated as short-term gains/losses. Long-term gains are usually taxed at a lower rate than short-term gains.

The tax rates that apply to your net capital gains, which is the amount by which your net long-term capital gain exceeds your net short-term capital loss, are generally lower than the tax rates that apply to other income. These rates are called the maximum capital gains rates, and could result in owing less taxes.

If you sold securities during the year, check to make sure you have the dates they were purchased. This will help you and your tax preparer determine if you are eligible for long-term capital gains or losses. Failure to provide these dates could result in you paying more taxes on earnings from investments or receiving lower deductions than for what you are eligible. Also, check your previous year's tax return, as you may be eligible to carry over capital losses to future tax years, if the losses exceed certain amounts.

Capital gains and losses are reported on your Schedule D: Capital Gains and Losses, and the resultant amount is carried over to your tax return (1040).

For more articles on filing taxes, see Common Tax Questions Answered, How can I make sure I'm ready to file my taxes? and Which is better for tax deductions, itemization or a standard deduction?

By Denise Appleby, CISP, CRC, CRPS, CRSP, APA

RELATED FAQS
  1. Are capital gains taxed differently in different countries?

    Learn about capital gains taxes in the Unites States as well as those of other countries, where these tax rates vary significantly. Read Answer >>
Related Articles
  1. Taxes

    Capital Gains Tax 101

    Find out how taxes are applied to your investment returns and how you can reduce your tax burden.
  2. Taxes

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  3. Investing

    7 Year-End Tax Planning Strategies

    Do you have a capital loss that could be booked and used to offset future tax liabilities? If so, it may be time to sell.
  4. Taxes

    Tax Tips For the Individual Investor

    Keep more of your money in your pocket with these seven guidelines.
  5. Taxes

    3 Common Tax Questions Answered

    We clarify some rules that often puzzle taxpayers.
  6. Taxes

    Using Tax Lots: A Way To Minimize Taxes

    The method of identifying cost basis can help you to get the most out of reduced tax rates.
  7. Retirement

    Top Tax Tips For Retirees

    Filing your taxes during retirement can be just as time consuming as when you were employed. We have some tips to help you out.
  8. Taxes

    Next Season, File Taxes On Your Own

    Master these fundamentals and you'll be doing your own taxes with minimal stress.
  9. Managing Wealth

    Capital Losses and Tax

    When an investment sells for less than its purchase price, the difference is a capital loss.
  10. Taxes

    Does Online Tax Software Really Save You Money?

    Both online tax software and tax professionals have their own set of advantages, but which one is actually better for your bottom line?
RELATED TERMS
  1. Capital Gains Tax

    A type of tax levied on capital gains incurred by individuals ...
  2. Tax Gain/Loss Harvesting

    Selling securities at a loss to offset a capital gains tax liability. ...
  3. Tax Loss Carryforward

    A tax loss carryforward takes place where a business or individual ...
  4. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  5. Tax Deductible Interest

    A borrowing expense that a taxpayer can claim on a federal or ...
  6. Short-Term Loss

    A capital loss realized on the sale or exchange of a capital ...
Hot Definitions
  1. Demonetization

    Demonetization is the act of stripping a currency unit of its status as legal tender and is necessary whenever there is a ...
  2. Investment

    An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic ...
  3. Redlining

    The unethical practice whereby financial institutions make it extremely difficult or impossible for residents of poor inner-city ...
  4. Nonfarm Payroll

    A statistic researched, recorded and reported by the U.S. Bureau of Labor Statistics intended to represent the total number ...
  5. Conflict Theory

    A theory propounded by Karl Marx that claims society is in a state of perpetual conflict due to competition for limited resources. ...
  6. Inflation-Linked Savings Bonds (I Bonds)

    U.S. government-issued debt securities similar to regular savings bonds, except they offer an investor inflationary protection, ...
Trading Center