Tax Accounting Basics
June 25th, 2010
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Question: Help! I just got my 1099 tax form from scottrade and don’t know what it means!?
I started my account in mid December and placed about 5 or 6 trades in that month. Right now I’m about even with the money i started out with(a little under) but I’m learning tons of stuff each day. Ok, I received my 1099 3 days ago but have no idea what it means and i know the basics of paying taxes(pay government,city, state etc etc etc) but i don’t know what my 1099 means. If i take it to my moms accountant would she know what it means? I’m kinda worried right now. Any tips for paying taxes with income from scottrade. Thanks
Answer: Yes, your accountant will know what to do with it. The fact that you are even is irrelevant if you have been trading and taking profits – the profits form stocks bought and sold are considered capital gains and in your case, short-term capital gains which carry a higher tax rate.
A simple example:
you bought 2 stocks, Company A and Company B, each 100 shares at $10 for a total investment of $2,000.
Company A stock increased $2 a share while Company B decreased $2 a share. Now your stocks are worth $1200 and $800 for $2,000. But now you sell Company A for $1200 and reinvest it in Company C buying 120 shares at $10 ($1200). So, you still have your $2000 invested. Unluckily, you made a profit on Company A of $200 and you now owe capital gains taxes on $200.
Since you will be charged sort-term gains, the profit you made will be taxed at your normal income tax rate instead of teh lower rate of long-term gains.
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