Tuesday, May 20, 2008

Stock Market and Taxes

The stock market for newbie can be quite an intimidating prospect. Figuring out all the terminology and what it all means can be quite hard at first. Unfortunately, these are the things that you must go through in trading in stock market, you will be responsible for reporting and paying tax on your trades.

Lets assume you bought and sold your first stock and where lucky enough to make a gain. That's fantastic, but you now owe taxes. There's saying, "there are only two sure things in life, death and taxes". Sure enough, the IRS is going to want it's cut of that nice gain you just made from trading in stock market. When you start stock market trading, you must be sure to keep good records of all your transactions.

When tax time comes you are going to be required to fill out Schedule D and report the gain you're earning in stock market trading. In order to do this, make sure that you have precise records of all your buys and sells and the dates they took place. Stock market trading just made your tax life a little tougher and there is nothing you can do about it.

Every single time you sell a stock, whether it be for a gain or a loss, is going to have to go on that Schedule D and that is important. The brokerage companies are required to report all your transactions to the IRS and so there is no escape. If you fail to report your gains and losses, your information will not match what the IRS has on you and bad things will start to happen. At best you will be required to make your return correct and at worst you will owe more money in penalties and fines.

If the stock you sell for the year adds up to be a loss, you can use up to $3000 of that loss on your return. Anything over that amount in losses has to be carried forward until the next year. This is just another thing that makes reporting your stock trading gains and losses a headache.

The stock market for newbies is hard enough before you add in the taxes. Unfortunately, the government won't have any sympathy for you as they consider you rich for just having enough money to invest in stock market.
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