Financial Planner

Checklist: Taxes on Stock Trades

Things to do this weekend with your money: The soaring popularity of do-it-yourself stock trading means that more investors are having to confront sometimes confusing reporting and capital gains rules. Here are some suggestions for easing the burden at tax time:

* Today: Don’t expect your brokerage to provide all the information you need to do your taxes. Most brokerages will report your sales on a 1099 form, but it may be up to you to record your purchases. If in doubt, call your brokerage and ask. In any case, keep all your confirmation slips and start some kind of organizing system so youll know which securities qualified for which kind of capital gains treatment. Securities held more than one year typically qualify for long-term capital gains rates that max out at 20%; securities held less than a year are subject to higher federal income tax rates of up to 39.6%.

* Saturday: Get updated. Some popular methods of deferring tax on investments, such as “deep-in-the-money options” and most “short sales against the box,” are no longer allowed. If you don’t know what these are, don’t worry; but if you had been planning to use them to reduce your tax bill, check out other methods. Some sites to troll: Quicken’s tax site at https://www.quicken.com and the IRS’s official site at https://www.irs.gov.

* Sunday: If you’ve done more than a handful of trades this year, consider making an appointment with your tax preparer now to begin sorting through the paperwork. The more trading you did, the more lead time you should have. Day traders should definitely not show up on April 14 with a box full of confirmation slips and account statements and expect to get their return filed on time. At best, they’ll have to get an extension; at worst, they could face penalties and interest for failing to pay the right amount of tax.