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A new year is upon us, which means federal income tax returns will be due soon.  Each year as we are preparing tax return, reviewing Denver Tax Attorneytax returns or conducting tax planning, clients as our tax lawyers, what is a Schedule D?  This is a very important question, especially if you own stocks and/or other capital assets.  The article drafted below by a tax lawyer in Denver, should help explain a Schedule D.

Schedule D is titled Capital Gains and Losses and is a schedule filed with your 1040 Individual Income Tax Return.  Thus, a Schedule D is used to calculate your long term and short term capital gains and capital losses and carry these figures through to your individual tax return.

Short term capital gains or losses are for assets held for one year or less.  Long term capital gains or losses are for assets held longer than one year.  Gain or loss is calculated by stating the sale price (proceeds amount) less your basis in the asset.  Your basis in the asset would be what you paid for the asset and depending upon the type of asset (and what may have occurred) your basis may be adjusted.  The sales price less your basis is the capital gain or loss.

For example, say you purchased 100 shares of stock of ABC, Inc. in 2010 for $5,000 and sold all 100 shares of ABC, Inc. stock in 2013 for $15,000.  The gain from this transaction would be $10,000, which is the sales price of $15,000 less your basis of $5,000.  The gain would be a long term capital gain because you held the asset for longer than a year.  In the above example, if you had sold the stock in 2013 for $1,000, you would have a $4,000 long term capital loss.

Capital losses can offset capital gains and an additional $3,000 of ordinary income in a taxable year.  For example, in 2013, if you had a $20,000 long term capital gain, and a $15,000 long term capital loss, the net capital gain for 2013 would be $5,000.  Capital losses can carryover if they are not “used up” in a taxable year.  For example, if in 2013, you had $20,000 of long term capital gain and $30,000 of long term capital loss, the capital loss would exceed the capital gain and you would not recognize any capital gain for 2013.  In addition to the amount of the loss used to offset the gain, you can offset ordinary income by $3,000 each year, and carry the rest of the loss forward.  Thus, based off of the above example, the $20,000 capital gain, would be offset by $20,000 of capital loss and the taxpayer could take an additional $3,000 of the capital loss to offset ordinary income and thus lower their federal income tax.  The taxpayer would thereafter have $7,000 of the $30,000 long term capital loss to carry forward to the next tax year.

A Denver tax lawyer at The McGuire Law Firm can assist you with your tax questions and needs.  We help our clients understand the tax laws and how these laws impact them individually and/or their businesses.

To speak with a tax lawyer in Denver, contact The McGuire Law Firm.  Free consultation.

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