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. How are capital gains calculated when using an online brokerage account?

    Are capital gains calculated annually or on every trade? How can selling a stock at a loss save me money on taxes? Also, ... Read Answer >>
  2. How many years can I wait to claim a loss on my taxes?

  3. How do I calculate the capital gains tax on the sale of my house?

    I'm thinking of selling my first house, but I just learned that I might have to pay capital gains taxes. I wanted to ... Read Answer >>
  4. Do I have to pay capital gains?

    I am a 72 year old retired widow. I want to sell my home and purchase a condo at the same value.  ... Read Answer >>
  5. What is the difference between income tax and capital gains tax?

    The conceptual difference between income tax and capital gains tax is that income tax is the tax paid on income earned from ... Read Answer >>
  6. 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. Personal Finance

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  2. Personal Finance

    Comparing Long-Term vs. Short-Term Capital Gain Tax Rates

    Learn about the difference between short- and long-term capital gains and how the duration of your investment can impact your tax liability.
  3. Personal Finance

    Capital Gains Tax 101

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

    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.
  5. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  6. Financial Advisor

    Top Tips for Deducting Stock Losses

    Investors who know the rules can turn their losing picks into tax savings. Here's how to deduct your stock losses.
  7. Financial Advisor

    Here's the Best Way to Skirt Capital Gains Taxes

    Taxpayers who know the rules for netting gains/losses can generate additional losses to net against the taxable gains in their portfolios. Here's how.
  8. Managing Wealth

    Understanding the Capital Gains Tax

    A capital gains tax is imposed on the profits realized when an investor or corporation sells an asset for a higher price than its purchase price.
  9. Managing Wealth

    Understanding Capital Gains

    Capital gain refers to the increase in value of a capital asset or an investment security upon sale. In other words, if you buy company stock, real estate or fine art and then sell it for more ...
  10. ETFs & Mutual Funds

    7 Ways to Create a Tax-Efficient Portfolio

    Taxes may be a necessary evil, but that doesn't mean they can't be reduced. Here's a host of smart moves today's investors can make.
RELATED TERMS
  1. Tax Gain/Loss Harvesting

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

    A tax loss carryforward takes place where a business or individual ...
  3. Long-Term Capital Gain Or Loss

    A gain or loss from a qualifying investment owned for longer ...
  4. Capital Gains Treatment

    The specific taxes assessed on investment capital gains as determined ...
  5. Capital Gains Tax

    A type of tax levied on capital gains incurred by individuals ...
  6. Capital Loss Carryover

    The net amount of capital losses that aren't deductible for the ...
Hot Definitions
  1. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  2. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  3. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  4. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  5. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  6. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
Trading Center