Form 8949
Candlefocus EditorPart I of Form 8949 is used to report short-term capital gains and losses, which is defined as an investment held for one year or less than one year. Part I requires the individual to list their total proceeds and total cost basis for all investments, as well as the date the investment was purchased, the date it was sold, and the associated gain or loss.
Part II of Form 8949 is used to report long-term capital gains and losses, which is defined as any investment held for more than a year. Part II requires the individual to list their total proceeds and total cost basis, just as Part I, but with an additional notation to indicate whether the gain or loss was a result of a wash sale. A wash sale occurs when an individual’s sale was substantially identical to a securities purchase in the preceding 30 days.
In order to accurately complete Form 8949, individuals must obtain Form 1099-B from their brokerages. This form details the cost basis, sales proceeds and other information for each sale of stock, bond, mutual fund, and other investments. Form 1099-B should be attached to Form 8949 for verification purposes. Additionally, once the individual has completed Part I and Part II of Form 8949, its contents should then be transferred to Schedule D of the individual’s return in order to report their net gain or loss from their investments.
For investments held in retirement accounts, Form 8949 is not required as these accounts are not subject to capital gains or losses tax. Therefore, capital gains or losses must be reported on forms related to the particular retirement account tax filing, such as Form 8606 for an Individual Retirement Account (IRA).
Completing Form 8949 can be time-consuming, as it requires taxpayers to list the details of their individual investments, ensure accuracy of data transferred to Schedule D and other forms, and abide by the required deadlines. Therefore, it is important to leave enough time and to gather all necessary documents prior to the tax return filing deadline.