Post: #1

I've been playing with my broker account lately. Thankfully my gains have been small, but I get the impression the tax man is going to say hello to me one of these days.

I don't really understand capital gains taxes. Does anyone know of a good place I can read up and get a primer before I go to an accountant? I don't like asking for professional advice without some background in what it is.

Post: #2

Try this link.

https://turbotax.intuit.com/tax-tools/ta...22384.html

Mainly it is function of the time you have held your investment. Over a year qualifies for capital gains.

Post: #3

(04-03-2014 10:59 AM)frenchie Wrote:  I've been playing with my broker account lately. Thankfully my gains have been small, but I get the impression the tax man is going to say hello to me one of these days.

I don't really understand capital gains taxes. Does anyone know of a good place I can read up and get a primer before I go to an accountant? I don't like asking for professional advice without some background in what it is.

You don't have to pay capital gains until you sell. Then the rate is usually 15% of the gain.

Be sure to keep good records. If you can't prove to the IRS what you paid for the stock, then you're suppose to pay on the full amount.

Say you bought a stock for $50,000 and sell it for $54,000, your tax is $4,000 x 15%.

If you can't find the pice of paper that says you paid $50,000 for it (your cost basis) then you have to pay $54,000 x 15%!! Much much more.

Post: #4

^^ Dusty makes a good point - no taxes are involved unless you sell. For some reason I assumed you were selling.

You're taxed on dividends etc. But not on gains unless you actually sell.

Post: #5

What country are you based in?

I used to give information on CGT...

E.G. If you're in the UK, you do not need pay tax unless you have over a £10k gain...

Post: #6

Cap gains taxes come in two flavors: short-term and long-term. For most purposes, "cap gains" mean long-term cap gains, as short term cap gains are taxed at the ordinary interest rate. To get long-term treatment, you have to hold the asset for one year.

To have an asset taxed as a capital gain, it has to be a capital asset or property. Sections 1221 and 1231 of the Internal Revenue Code (26 USC 1221, 1231) give the definitions. Essentially, they are assets you buy and hold, rather than wages you work for.

Every capital asset has a tax basis. The basis can be understood as your starting point for determining gain or loss. For instance, if you buy an asset for $10, you will generally have a basis in that asset of $10. If you received it as a gift or by trade, or if you've taken depreciation against it, determining basis is more complicated.

When you sell the capital asset, you will realize a gain of the sale price of the asset minus your basis in it. If you sell your $10 asset for $11, you realize a capital gain of one dollar. (If you lose money on an asset, you have a capital loss that can be offset against other capital gains, but only up to a very small limit - $3,000 or so, depending on whether the law has changed.)

Finally, when you recognize the capital gains, you pay the taxes on it.

Capital gains tax planning involves delaying recognition of gains and finding ways to step up your basis. A step up occurs when you are allowed to increase your basis by some triggering event. One common triggering event is a distribution on death. Say your grandpa bought that asset for $10. His basis is $10. However, he leaves it to you when he dies, and at that time, the fair market value of the asset is $100. You get a step up in basis to $100. Now, if you sell the asset for $110, you have cap gains of $10 ($110-100) rather than $100 ($110-10). If your grandpa had lived and sold the asset himself, he would realize gain of $100.

Post: #7

I assume brokers typically track this cost basis info for you?

And do they also keep track of your losses that you can apply towards future capital gains?

Post: #8

(04-04-2014 09:20 AM)nmmoooreland20 Wrote:  I assume brokers typically track this cost basis info for you?

And do they also keep track of your losses that you can apply towards future capital gains?

Yes, sort of .

I buy my securities from online brokers such as TD Ameritrade.

I had accounts with several different online brokers, and a few years ago decided to consolidate with one broker, so I moved the shares over. The online broker I use does not have the cost basis for the securities I moved.

Also what happens is that there is merger and acquisition activity. Some of it gets complicated. Your broker might not be able to easily connect your current stocks to what you actually acquired.

Fortunately, I was able to find old statements and so forth and identify the cost basis, but it was a pain in the ass forensic exercise.

Post: #9

(04-04-2014 09:20 AM)nmmoooreland20 Wrote:  I assume brokers typically track this cost basis info for you?

And do they also keep track of your losses that you can apply towards future capital gains?

You should never rely on the broker for cost basis...you should be keeping track of your cost basis and any distributions you receive that may affect cost basis. I have two brokers, sometimes holding the same ETFs in both, brokers would have no clue about my ACB.