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Frequently Asked Questions and Answers on Stocks and Taxes

What is the Capital Gains Tax Rate for 2012?
If your tax bracket is equal to the 10% or 15% bracket then the short term capital gain is taxed at your ordinary income rates and the Long Term capital gain and Qualifying Dividends are taxed at a rate of 0%. If your tax bracket is greater than the 15% bracket then the short term capital gain is taxed at your ordinary income rates and the Long Term capital gain and Qualifying Dividends are taxed at a rate of 15%.

Is the total amount of the capital loss deductible?
You are allowed to offset capital "gains" with capital "losses". If you have capital gains equal to or greater than the stock loss, then the current year stock loss is fully deductible. If you have no other capital gains or the loss exceeds the capital gains, then the current year stock loss is limited to the lessor amount of the loss that exceeds the gain or $3,000 (1,500 if you're filing as married filing separate status). If the loss is limited in the current year, then you may carry over the unused limited amount into future.

What is the basis of property I received as a gift?
To figure the basis of property you get as a gift, you must know its adjusted basis to the donor just before it was given to you. You also must know the fair market value (FMV) at the time it was given to you and any gift tax paid on it. Generally, the basis to the done is the same as in the hands of the donor at the date of the gift. The basis to determine if there is a loss on the sale of a gift is the value as in the hands of the donor at the date of the gift or the fair market value whichever is lower. There is no gain or loss on a sale of a gift when the selling price is less than the basis for the gain and more than the basis for the loss calculation. The basis of property received is increased by the amount of gift tax attributable to the net appreciation in value of the gift. The net appreciation is the amount by which the fair market value of the gift exceeds the donor's adjusted basis immediately before the date of the gift.

What is the basis of property I received as an inheritance?
Generally your basis of inherited property is the fair market value of the property on the date of the decedent's death. Speak to your local CPA about the exceptions that would determine when the fair market value should not be used.

How do I report my loss on a Worthless stock?
If you own securities and they become totally worthless, you can take a deduction for a loss, but not as a bad debt. The worthless securities are treated as capital assets sold on the last day of the tax year. Report worthless securities on IRS Form 8949 and Schedule D. If you discover you didn't claim a valueless stock loss on your original tax return in the year it became worthless, you can file a claim for a credit or refund due to the loss. Just file Form 1040X to amend your return for that year. You have up to seven years from the date your original return had to be filed.

Do I use the Trade date or settlement date to report my stock transactions?
Proceeds from stock transactions are reported to individuals on Form 1099-B. The sales will be listed, including the trade date, not the settlement date. The individual transactions are entered on IRS Forms 8949 and Schedule D.

On my brokerage statement, what do the Form 1099-B Cost Basis Categories mean?
Category A = Covered = Cost basis is reported to the IRS. Category B = Non-Covered = Cost basis is Not reported to the IRS. Category C = Supplemental = Proceeds Not reported to the IRS. Stock Options fall into Category C which is supplemental information that is supplied to customers when available, but is not reported to the IRS. [Read More]
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