Guide to Reporting Stock Investments on Your Return

Did you buy stocks for the first time in 2020? Well, first, congratulations! Investing in the stock market is one of the best ways to grow your net worth. By investing in stocks, you are basically putting your money to work for you. Money you invest can earn interest and dividends. Over time, you can earn thousands of dollars in return!

Owning stocks and other investments, while a good thing, can complicate your tax situation. Stocks and investments must be reported on your tax return. You may have to pay taxes on interest earned, dividends, or from selling the stocks.

Overwhelmed? Don’t be. We are here to help. Here is everything you need to know about reporting stocks and investments on your tax return.

Paying Taxes if You Buy or Sell Investments

If you sold some of your investments in 2020, you may need to pay taxes on any capital gains you had. Capital gains are basically the profits you earn from investments. The formula is simple: capital gains = selling price – purchase price.

How much you will owe in taxes will depend on a few factors. Capital gains fall into one of two categories: short-term or long-term holdings. A short-term holding is one you had for less than a year, and, depending on your income, it can be taxed up to 37 percent. Alternatively, long-term investments are ones you held for over a year. Long-term investments are also taxed depending on your income, resulting in tax rates of 20, 15, or even 0 percent.>

Paying Taxes on Interest and Dividends

Didn’t sell any of your investments this year? While you won’t owe taxes on capital gains, you will likely still owe taxes on dividends and interest.

If you own stocks or index funds, companies may periodically pay you in dividends. Similarly, if you earn interest on any bonds, you will need to report it and likely pay taxes on it.

How to Report Stocks and Investments on Your Tax Return

Starting to invest complicates your tax situation, but don’t let it worry you. TaxAct is here to help you navigate all of the additional forms you need to report stocks and investments on your tax return this year.

To start, gather all forms and documentation you received. That may include 1099-DIV forms, which shows you how much each company paid you in dividends. You may also receive a 1099-B form, which demonstrates any capital gains you had throughout the year.

Next, it is time to actually file your taxes. TaxAct will walk you through the process of filing your taxes and provide the support you need to accurately report the information. TaxAct has a $100k Accuracy Guarantee, so you can trust they will work to get you the maximum refund.

Looking Ahead to Next Year

Now that you have filed your taxes, you may be tempted to tuck all of your information away and leave your investments alone. However, this is the perfect time to get your ducks in a row for next year.

Consider what you owed on your investments, if any. As you continue to invest, it’s likely your taxes will continue to increase. To avoid paying even more in taxes, you may want to consider a tax-free investment vessel, such as a 401(k), Roth IRA, regular IRA, or a health savings account.