IRS Form 8949 Explained
Table of Contents
Key Takeaways:
- IRS Form 8949, Sales and Other Dispositions of Capital Assets, is a tax form used to report capital gains and losses from transactions involving investments.
- The taxpayers who must file IRS Form 8949 include individuals, partnerships, businesses, trusts, and estates.
- Each tax year, brokerages will send investors a copy of IRS Form 1099-B, Proceeds from Broker and Barter Exchange Transactions, a tax form that outlines the cost basis of their transactions, and this information is used to fill out IRS Form 8949.
- Taxpayers can calculate their capital gains and losses for the tax year using IRS Form 8949 and use the information to fill out and file Schedule D (Form 1040), Capital Gains and Losses, with the IRS.
What Is IRS Form 8949?
IRS Form 8949, Sales and Other Dispositions of Capital Assets, is a tax form used for reporting capital gains and losses from investments to the IRS. The IRS Form 8949 has two parts: Part I, which is used to report short-term capital gains and losses, and Part II, which is used to report long-term capital gains and losses.
What Are Capital Gains And Losses?
Capital gains and losses refer to the increase or decrease in the value of a capital asset once it has been sold. If a taxpayer sells an asset, such as a stock or real estate, for more than what they originally paid for it, taxpayers may be subject to capital gains tax on the increase in value.
Who Must File IRS Form 8949?
There are several types of taxpayers who use IRS Form 8949 to report any capital gain or loss to the IRS, such as:
- Individuals
- Partnerships
- Businesses or corporations
- Trust
- Estates
What Information Is Reported Using IRS Form 8949?
The types of capital gains and losses that can be reported to the IRS using Tax Form 8949 include:
- Selling or exchanging a capital asset that is not reported using another IRS tax form
- Capital gains from capital assets that were not used in the taxpayer’s trade or business and came from involuntary conversions
- Bad debts that are non-business related
- Worthlessness of security
- The deferral of capital gains invested in a Qualified Opportunity Fund
- The disposal of equity interest in a Qualified Opportunity Fund
Forms Needed To File IRS Form 8949
In order to successfully fill out the IRS Form 8949 to file with the IRS, the taxpayer will need a few items:
IRS Form 1099-B: Proceeds from Broker and Barter Exchange Transactions
IRS Form 1099-B is a tax form provided by a brokerage that outlines the cost basis of the investor’s transactions. This form is sent out once a year to account holders with an investment history as well as to the IRS.
IRS Form 8949: Sales and Other Dispositions of Capital Assets
This tax form is filled out using the information provided on IRS Form 1099-B and is used to calculate the capital gains and losses from the tax year so that taxpayers can use the information to fill out Schedule D.
IRS Schedule D (Form 1040) Capital Gains and Losses
Using the capital gain and loss information calculated using IRS Form 8949, taxpayers can fill out Schedule D of IRS Form 1040 to report the information to the IRS when they file their federal income tax return during the tax season.
How To File IRS Form 8949
Taxpayers with investments that are sold to achieve a capital gain or loss must file IRS Form 8949 with the IRS along with their Schedule D: Capital Gains and Losses of IRS Form 1040. For each asset that the taxpayer reports using IRS Form 8949, they must provide a description of the asset, the purchase price, the purchase date, the selling price, the selling date of the asset, and if there were any adjustments to the gain or loss, so it is important that taxpayers maintain accurate records of their financial information in order to complete the tax filing.
Top Section: Personal Information
At the top of IRS Form 8949, taxpayers must enter their name as it is documented on their federal income tax return, as well as their Social Security Number (SSN) or taxpayer identification number (TIN).
Part I: Short-Term
Part I of IRS 8949 is used to report transactions involving capital assets that were held for a time period of less than 12 months. Short-term capital assets are typically taxed at a higher tax rate than long-term capital assets.
Part II: Long-Term
Part II of IRS Form 8949 is used to report buy and sell transactions involving assets the taxpayer held for a period of 12 months or longer. The tax rate for long-term capital assets is typically lower than the tax rate for assets held for less than a year.
Individuals and businesses can report both short-term and long-term capital gains and losses from investments using IRS Form 8949, Sales and Other Dispositions of Capital Assets. If you need help reporting your investment income to the IRS or with any part of the tax preparation process, consulting with the tax relief professionals at Ideal Tax will put your worries at ease. Set up a free consultation today to confidently approach your taxes this year.
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