We welcomed a lot of new investors in 2020, thanks to super-low trading fees, a bunch of new trading apps, and well, let’s face it, we had some extra time to learn different things.
So if you’re a newbie to the investment world, consider this your tax-time heads-up. Uncle Sam will collect his share of any money you make trading in the stock, bond, or cryptocurrency markets and you will need to report it on your tax return.
Remember though – only sales cause taxable events. If you buy and hold, you’re good. You will not owe tax unless you sell and make money.
If you sold something in 2020, you’ll receive a Form 1099-B Proceeds from Broker and Barter Exchange Transactions. It will show all your sales proceeds, as well as any interest and dividends received, says Lisa Greene-Lewis, TurboTax ( (INTU) – Get Report) expert and CPA.
Note it reports your sales proceeds – that is not the amount you owe tax on. Your taxable amount is the difference between the sales proceeds and your original cost basis. If your cost basis is not reported on Form 1099-B, then you’ll need to go through your records and find it.
Your taxable gain also is determined by the amount of time you held the asset or bond. If you sell an investment that you have held for a year or less, you have a short-term gain and it’s taxed at your ordinary-income tax rate. If you sell after that, your gain is considered long-term gets the benefit of lower tax rates — 0%, 15%, or 20% depending on your income level. (TurboTax actually just launched a new capital gains calculator to help you figure all this out.)
You then will need to file a Form Schedule D – Capital Gains and Losses with your tax return so be sure to watch the video above or check out her advice on last-minute tax tips here.