January 5, 2021

The stock market can be extremely volatile, especially throughout the entirety of this year due to the pandemic, businesses closing down, and unemployment numbers increasing, and of course, the presidential election that just took place.

Millions of American invested in the stock market and took advantage of stock prices when they hit their lowest while millions of others chose to sell the current stock they had in order to avoid any additional losses they could face in the near future.

If you currently invest in the stock market or sold your stocks this year, you may be wondering if you will face any tax implications when it comes time to file your taxes. Here is everything you need to know about reporting your stocks on your tax return.

Taxes on Capital Gains

Shares of stock that were sold at a higher rate compared to when you purchased them means that you will be responsible for reporting and perhaps paying on any capital gains you may have created. One thing to consider when selling during a downturn is how long you’ve had your stock for. You may have a tidy gain even if it has fallen from its previous highs.

Long-term vs. Short-term Capital Gains

Taxpayers that have a gain on a sale of security they have held for over a year will receive the benefit of lower long-term capital gains tax rates depending on their income. However, if their gains come from the sale of a stock that has been held for one year or less, their stock sale will be taxed as a short term capital gain.

Offsetting Capital Gains with Capital Losses

If you’ve sold losing stock and have a capital loss, you can offset your losses with your capital gains. This is also known as tax-loss harvesting meaning investors analyze their capital losses so they can offset their capital gains.

Optima Tax Relief provides assistance to individuals struggling with unmanageable IRS tax burdens. To assess your tax situation and determine if you qualify for tax relief, contact us for a free consultation.