With modern apps and technologies, it’s never been so easy for individuals to participate in the investment world. Millions of Americans are dabbling in the investing game. Regardless of the size of your portfolio, your investing moves will have some impact on your tax bill. When it comes time to do your taxes, the size of your portfolio, your investment activities throughout the year and your decision to take the standard deduction or itemized deductions will all be factors.
What to file
Any income you receive that is related to your investments or the sale of such investments will be reported on one of many 1099 forms. Be prepared to receive one of the following:
- 1099-B: this form lists any gains or losses from all broker or barter exchange transactions
- 1099-DIV: reports dividend and distribution payments
- 1099-INT: will report any interest income from checking, savings, CDs, bonds, etc.
- 1099-OID: when you purchase a bond for any amount less than face value, this form will report the original issue discount
- 1099-R: distributions from retirement plans, annuities, pensions and disability payments from qualified plans
- 1099-Consolidated: this form will compile the reporting of multiple investment incomes into a single form
If your sale of stocks this year resulted in a gain, you will have a capital gain. Your tax rate will depend on whether these gains are considered short- or long-term capital gains, as well as your income tax bracket. If you owned the investment for one year or less, it is considered a short-term investment, and is taxed at your normal tax rate. Investments held for longer than one year are long-term investments that will be taxed at zero, 15 or 20 percent, depending on your income and filing status.
Any losses you experienced can be offset by your gains, reducing the tax you owe. Overall, if this results in a net capital loss, up to $3,000 can be deducted from your income. If your losses exceed $3,000, they can be carried forward to the proceeding tax year.
Even if you didn’t sell any investments this year, there still may be some impacts on your taxes. Any income that results from your investments is taxable. This would include any dividends you receive from mutual funds, stocks or index funds you own.
Take advantage of any investments in your retirement accounts you made this year. For 2018, up until the tax deadline April 15, you can make up to a $5,500 ($6,500 if you’re 50 years of age or older) tax-deductible contribution to your IRA. Potentially, you may also be able to get the saver’s credit—worth up to $1,00 if you’re single or up to $2,000 for married filing jointly, for investing in your retirement.