Four Ways to Beat the Final Tax Deadline When You Have Stock Transactions

Taxes 101

Ok, so you’re just getting around to tax preparation for your 2009 tax return. You’re not alone. Approximately 10 million Americans filed an extension this year. If you’re like most procrastinating tax filers, you extended your return because you perceived something was complicated about your tax situation, like multiple W-2 forms, sale or purchase of a home, or stock transactions.

If it’s stock transactions, have no fear. I’m going to tell you four things you need to know about stock transactions and how TurboTax makes this easy. And while I’m using the term stock transactions generically, they can include bond sales and other “capital asset” sales.

First, TurboTax determines your holding period based on your purchase and sale dates and then computes the correct tax automatically. However, the first thing you need to know about stock transactions is that the gain or loss can either be long- or short-term. This refers to how long you held the investment. Short-term is a holding period of less than one year. Any holding period of longer than one year qualifies the gain or less as long-term. The holding period determines whether you get preferential tax – short term gains are taxed at regular rates (up to xx%) while long term gains are taxed at a maximum 15%.

Second, stock sales can also result in losses, which in this market many of us know quite well. While stock losses hurt, they can be somewhat beneficial because they offset stock gains and other income. The rules for netting gains and losses can be confusing, but once again, TurboTax does all this for you automatically. The other thing to keep in mind is that if after netting stock losses and gains, you have a loss, you can use up to $3000 of that loss to offset other income. Any remaining loss beyond the $3000 can be used to offset income in subsequent years. So, your financial loss today can provide tax benefits by also reducing your future taxable income. TurboTax automatically tracks this for you too.

Third, the IRS has in place diagnostic tools that match your sales to those reported by your broker. Therefore, it is important to account for all your stock transactions, otherwise you might receive one of those dreaded letters from the IRS!

Finally, the best way to overcome any concerns you may have in reporting your stock transactions is to automatically import your transactions from your broker. TurboTax does this, and supports over 100 financial institutions so it is highly likely yours participates. Importing stock transactions eliminates all data entry and ensures your reported transactions match exactly what the broker reported to the IRS. Importing is as simple as identifying your broker and then using your credentials to access your brokerage account. It takes just seconds to do. Once you try it and see the results, you’ll never turn back to manually entering your stock trades.

That’s it for stock transaction. Now it’s time to finish your tax return. Come see us for tax help next year. Get busy!

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