Taxes on short-term capital gains

jaalin · 4 months

you are taxed on how much you bought, because the IRS has no way of knowing how long you've held the stock for.

ie:

buy 10 shares of RDDT @ 50.0 / share = $500 today
buy 10 shares of RDDT @ 51.0 / share = $510 tomorrow
sell 20 shares of RDDT @ 52.0 / share = $1040 day after tomorrow

so for your first 10 shares, you made $2/share for $20 total, and your second 10 shares you made $1/share for $10 total, for a grand total of $30. your brokerage will report to the IRS the fact that you bought a total of $500 + $510 = $1010 of stock, which you will be taxed on unless you fill out the schedule D form, or have Gainskeeper do it for you. you SHOULD be taxed on the $30, not $1010, so as you can imagine, this is quite an important form to fill out. it gets a bit more complicated if you've held a particular stock for over a year, but i imagine this is not the case for you.

I know Scottrade offers Gainskeeper for free, and Zecco doesn't. I do know that you can buy it through Zecco for like $20-30, which seems ok but if you're a college student buying several shares at a time, perhaps something to consider. The schedule D form is not that hard to fill out as long as you follow directions and have the 1099 forms from your brokerage (usually available online as well).

make sure you do this!!! i've had the IRS send me a bill for over $10000 (on a net gain of zero for the year!) because i didn't properly fill out my schedule D. once i did, they sent a letter back saying they resolved my case and no further action needed to be taken. whew!

hsfrey · 4 months

The problem is that your broker reports the total gains to the IRS on your 1099. It's up to you to report the date and costs of initiating the positions on your sched. D, , and do the subtraction to calculate the gains, which is what you're taxed on.

My broker usually (sometimes I have to remind him) sends me a list with the info I need for Sched D.

xcrunna19 · 4 months

Would be careful if you are still dependent on your parents. The kiddie tax could apply to you.

http://en.wikipedia.org/wiki/Kiddie_tax

If the funds have already been taxed that you are investing, it would be whatever exceeds or falls below the principal invested.

Regardless you should consult your families CPA before making any investing decisions in regards to this.

dzl10 · 4 months

I'm pretty sure you're taxed on the gains, not principle plus gains. One thing to be careful about is when using online tax tools, make sure the data is entered correctly. Turbotax and/or Scottrade kept thinking an investment of $100 with $10 gain meant my investment was $0 and profited $110. I've always manually entered all my transactions to correct this mistake.

BattleHamster · 4 months

This is why I love Gainskeeper.com. It costs a bit, but it imports all my transactions from Ameritrade and exports to Turbotax. Too easy, especially for people like me who hate doing taxes.

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