Once you start investing in individual stocks, your taxes will get more difficult. For many people who have no investment income, they are able to file their taxes on the simple 1040EZ form. But once you start buying and selling stocks, you will need to file form 1040 because you will probably have dividend income as well as capital gains and/or losses.
The screenshot below is the front page of my 1099 for tax year 2016 that gets sent to me by my broker. This is from TD Ameritrade and any of the established online brokers you choose will send you something similar (I don’t know about Robinhood or Loyal3 as they give you extremely limited services). Always remember that the information that shows on these statements is reported to the IRS by your broker (as required by law) so you cannot get out of paying your taxes on the money you make.
Dividends And Interest
You can see I earned $5,195.45 in dividends which needs to be listed on Schedule B along with any interest income you have. It also has to be on the front page of your 1040 form along with the Qualified Dividends number of $3,702.55. The two smaller numbers below those need to go somewhere else and you will only have those if you have a certain kind of stock (for me it is VTR that generates that type of income).
This next screen shot shows I have earned a little more than $13 in interest. As long as interest rates remain so low, most people will not have any interest income. As I mentioned above, this number needs to be reported on Schedule B.
Capital Gains And Losses
The following screenshot shows my only sale during the year of 125 shares of CCP and that needs to be reported on Schedule D which is kind of the summary page for what you list on form 8949. I had a long term loss of $1,281.13 which I get to deduct from my totals before I calculate out how much I owe the IRS. You are allowed to deduct a maximum each year of $3,000 (if you have more losses than gains) and if you have more gains than losses, you can offset all your losses.
Whenever I have a lot of stock sales for the year, this can get kind of messy because you need to list each one on form 8949, total all the numbers, and then put them Schedule D. There is a whole lot more I could write about stocks and taxes but that is not the purpose of this post. I only wanted to show you what my 1099 looked like so you could get an idea of what tax time means for stock investors.
The Last Pages Of My 1099
The final three pages of my 1099 are merely a list of all the dividends and interest I was paid in 2016. You can see each dividend payment that I got for each stock and the total for each company. This information is merely a detail of the number(s) that were on those first two pages. I don’t need to do anything with these last page because they are just for my reference.
I Hate Tax Time!
I know this is all very difficult to understand for anyone who has no stock investing experience. For many of you, it might be smart to get professional tax help the first time you are faced with having to report capital gains and/or losses and dividend income.
For me, it was also very hard to understand all of this the first couple of years I started investing in stocks and got these 1099 statements from my broker. I wanted to pull my hair out! But I was lucky and had my Dad available to show me how. After doing it a couple of times I was able to understand it and realized that it is basically the same thing each year. So, every year I pull my last couple of tax returns out and duplicate what I did the year before with the current year’s numbers. Once you know how and understand the process, it definitely becomes much easier to do. However, even though I can do it all myself, February and March tax time never ceases to be one of the most annoying and frustrating times of the year and I’m sure I am not the only one who feels that way!