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.
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