this is going to sound ignorant (imagine that) to many, but I really have no idea. If I were to lose my job and struggle to find another that met my financial needs, how would a sell-off of say $5000.00 of simple stock be taxed? Would this count as straight income for the year? How is capital gains tracked? I wouldn't think that I could be taxed twice on the original investment (post taxed wages used to buy stock), but I'm really not sure how it works.

Thanks,

T-Chuck

Welcome to the Fool. You wrote:

If I were to lose my job and struggle to find another that met my financial needs, how would a sell-off of say $5000.00 of simple stock be taxed?

When you sell a stock held in a regular investment account you have a capital gain or loss, depending on whether you sold for a gain or loss. You track these things by keeping your trade confirmations. When you sell you staple the sale confirmation to the buy confirmation and put it in this year's tax file.

Take a look at the FAQ---------------------------------->
There's a lot of information about these issues there.

Phil

how would a sell-off of say $5000.00 of simple stock be taxed? Would this count as straight income for the year?

Generally, no. First, you are generally only taxed on the gain---the difference between the original cost and the price at which you sell. Second, it depends on how long you've held the stock. Each state may have its own special rules, but the federal government taxes short-term (held less than 1 year) and long-term (held 1+ years) gains differently. ST gains are taxed like regular income; LT gains are taxed at a special rate (15%, I think). Here in Mass (where I live), the state charges an additional 5% tax on LT gains, 12% tax on ST gains.

How is capital gains tracked?

Basically, the gain is the difference between the cost and the sales price. But, you'll need to know more to file a tax return. Check out publication 550:

http://www.irs.gov/pub/irs-pdf/p550.pdf

Puss

the federal government taxes short-term (held less than 1 year) and long-term (held 1+ years) gains differently. ST gains are taxed like regular income; LT gains are taxed at a special rate (15%, I think).

To be excessively picky:

- The short-term holding period is a year or less; long-term is more than a year.

- The rate on long-term capital gains is 15% if your tax bracket is 25% or higher. If you're in the two lowest bracket, long-term capital gains are taxed at just 5%.

Pedantically,
Lorenzo

Thanks for crossing my t's and dotting my i's :)

Puss

My kids have no "job" but many years I have had to file taxe forms for the capital gains accrued on mutual funds. I calculate if it's better for me to claim it or them, some years it's me, others' it's them.

cat

My kids have no "job" but many years I have had to file taxe forms for the capital gains accrued on mutual funds. I calculate if it's better for me to claim it or them, some years it's me, others' it's them.

You don't get to pick and choose here. If the mutual funds are yours, you report the gains, losses, and income from the mutual fund. If the mutual funds belong to your children, they report the gains, losses, and income.

There's no choosing who will pay the least taxes here.

--Peter

My kids have no "job" but many years I have had to file taxe forms for the capital gains accrued on mutual funds. I calculate if it's better for me to claim it or them, some years it's me, others' it's them.

You don't get to pick and choose here. If the mutual funds are yours, you report the gains, losses, and income from the mutual fund. If the mutual funds belong to your children, they report the gains, losses, and income.

There's no choosing who will pay the least taxes here.

Actually, there may be. If the children are under age 14 and the income is only interest, dividends, and/or capital gains distributions (but not capital gains from sales of fund shares), the parent can elect to report the income on his return. It's usually better for the kids to report separately, but not always.

Ira

Actually, there may be. If the children are under age 14 and the income is only interest, dividends, and/or capital gains distributions (but not capital gains from sales of fund shares), the parent can elect to report the income on his return. It's usually better for the kids to report separately, but not always.

Ok. Once again I stand corrected.

--Peter

PS - I'm having a hard time thinking of any situations where it makes sense for the parent to report the income other than problems with low income - lots of deductions that are being wasted dragging taxable income below zero. Although a mutual fund with lots of cap gain distributions and a parent with a big cap loss carryover might apply at any income level.

Peter: I'm having a hard time thinking of any situations where it makes sense for the parent to report the income other than problems with low income - lots of deductions that are being wasted dragging taxable income below zero. Although a mutual fund with lots of cap gain distributions and a parent with a big cap loss carryover might apply at any income level.
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If the kid's below 14 you're dealing with the kiddie tax (tax at the parent's rate)anyway, except for the standard deduction of $700 and lower tax on the next $700. So it doesn't even matter if it's interest or dividends - the parent's rate will apply on the excess.

Plus we'll charge for doing the kid's return. That makes it simpler for some parents, and saves us time.

Bill

Plus we'll charge for doing the kid's return. That makes it simpler for some parents, and saves us time.

This parent's view - better to have separate returns - clearly shows whose money is whose, particularly if you have more than one child. It's also easier when you would have to move to a separate return anyway. Separate files with all the documentation as well.

rad

(rad:)This parent's view - better to have separate returns - clearly shows whose money is whose, particularly if you have more than one child. It's also easier when you would have to move to a separate return anyway. Separate files with all the documentation as well.
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Yes, you certainly should have separate files, to show whose money is whose. That's always true. And when you make the election to pick up the kid's income, you do it on Form 8814, (I think)which is the equivalent of waving a flag about whose income it is.

I never did it myself either. But for the parents to pick up the kid's income, under age 14, is a legal option that some people have found advantageous.

Bill

If the kid's below 14 you're dealing with the kiddie tax (tax at the parent's rate)anyway, except for the standard deduction of $700 and lower tax on the next $700. So it doesn't even matter if it's interest or dividends - the parent's rate will apply on the excess.

Plus we'll charge for doing the kid's return. That makes it simpler for some parents, and saves us time.

I've also seen all the income reported on the parent's return when the parents don't want to reveal their income to their children. The parents' taxable income must be reported on Form 8615 when the "kiddie tax" is calculated.

Ira

I've also seen all the income reported on the parent's return when the parents don't want to reveal their income to their children. The parents' taxable income must be reported on Form 8615 when the "kiddie tax" is calculated.

Interesting point. Thinking further, this can only happen through age 13 and the parent is still responsible for signing and filing the return. Are they somehow required to show it to their kids ?

(I seem to remember showing them their returns - insert long story about Colorado TABOR law here)

rad

I've also seen all the income reported on the parent's return when the parents don't want to reveal their income to their children. The parents' taxable income must be reported on Form 8615 when the "kiddie tax" is calculated.

Interesting point. Thinking further, this can only happen through age 13 and the parent is still responsible for signing and filing the return. Are they somehow required to show it to their kids ?

Actually, the parent is not responsible for signing the return, the child is. The instructions state, "If the child can't sign the return, either parent can sign the child's name in the space provided. Then, enter 'By (your signature), parent of minor child.'" So, if the child is capable of signing her/his name, s/he gets to see the parents' taxable income.

Ira

My kids have no "job" but many years I have had to file taxe forms for the capital gains accrued on mutual funds. I calculate if it's better for me to claim it or them, some years it's me, others' it's them.

You don't get to pick and choose here. If the mutual funds are yours, you report the gains, losses, and income from the mutual fund. If the mutual funds belong to your children, they report the gains, losses, and income.

There's no choosing who will pay the least taxes here.

--Peter
_----------------
All funds are in UGTMA that are controlled by the grandfather.

cat

Some years it was cheaper for me to pay the taxes on the kid's returns then to claim the funds on mine. If my refund is reduced, for example, by $1000 if I claim thier income, and if I don't claim thier income and pay thier tax of say $500, I essentially save $500. (random numbers, just a point being made.)

cat