A taxable investment account is a big step on the way to a stable financial future. It means you are saving for the future, prioritizing the interests of your future self over the wants of your present self. But it does come with some new responsibilities. One of the biggest things that those who start a taxable investment account will notice is the change in income tax reporting.
If this is your first year with taxable investments, here are a few steps to properly reporting and maintaining that income.
1. Track Costs
Most investors begin by using a brokerage firm to handle the actual buying and selling of stocks, bonds, and other common investment vehicles. Familiarize yourself with your broker's forms and customer portal. You'll need to know such things as the amount each share was purchased for as well as when the transactions all occurred.
This information will become important when you sell stocks. If you can't find this information on your paperwork, consult with an experienced accountant as well as the brokerage company. In some cases, you may need to keep your own records.
2. Wait for Tax Forms
Most taxable investments are in the form of stock ownership in companies. Each share of stock represents a partial ownership in that organization. When you receive money from that investment — usually on a quarterly basis — you generally report it as a dividend. Dividends are usually reported as income at the end of each year on Form 1099-DIV or Form 1099-MISC, available from the brokerage company.
In addition, if you sell any stocks or bonds during the year, you should receive Form 1099-B. This document is used to report capital gain, or the amount you receive above and beyond your purchase price. A capital loss occurs when you lose money on the sale. Losses counteract gains, so it's important to include both on your tax return.
3. Work With a Tax Preparer
Including investments in your income tax paperwork can complicate the process of filing. Forms 1099-DIV, 1099-B, and 1099-MISC are often unfamiliar to most people. These can easily be entered in the wrong places on tax forms, resulting in incorrect taxes as well as notices from the IRS or state agencies.
Whether you're embarking on your first investment this year or aren't sure what to do with tax forms from last year, a qualified tax preparer can help. Make an appointment with tax preparation services today to learn what you can expect as an investor and how to minimize your related tax bill.
Share21 November 2019
One thing I have always been good with is money. Even in high school, I always had a savings from my allowance and from working for the neighbors. I created this blog to help other young people understand the importance of financial responsibility even at a young age. If we start our adult lives knowing about financial responsibility, we can make it further in our lives before we suffer from the devastation of financial mistakes that can take years and years to pay back. Hopefully, what you learn here will help you avoid those financial mistakes and maybe help you recover from the ones you've already made.