Trading stocks? These forms are needed to file your tax return

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The past two years have been a confusing time for many when it comes to managing their personal finances. It has become increasingly popular to attempt lucrative new ventures during the pandemic, from unconventional side hustles to studied investment strategies. For stock traders, whether beginners or veterans, there are some quirks that will require special attention when filing your taxes.

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Yes, filing taxes can be easy or frustrating. The one thing that taxes are not is avoidable. Unless your investments are in retirement accounts such as IRAs or 401(k), you must report all stock transactions to the Internal Revenue Service (IRS). To do this, you will need to be thorough and gather all the required documents – documents detailing the investment information relating to your stock trading activities (and any associated dividends) for that tax year.

Regardless of your investment behavior – whether you prefer a traditional brokerage service or a mobile platform or application – you must certain documents detailing your trading activities each tax year. You will receive a 1099 document from each company you have done business with (either by mail or by download), so you will have to wait until you have received all of your 1099s before you can properly file your taxes.

1099s are divided into two categories, at least with respect to investment income: the 1099-B is for investment sales and cost basis accounts, including any washout sales violations, and the 1099-DIV relates to dividends and capital gains distributions. Wash sales regulations require the disclosure of all of your and your spouse’s accounts.

For the next year, you should look for other ways to reduce your taxable income, such as contributing to a tax-advantaged retirement account, a health savings account, and turning stock loss into a tax-loss crop. Whether you are heavily invested in stocks or not, a professional tax advisor or software service can help you with these strategies when tax season arrives.

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The excitement and allure of trading and making money with stocks should not be dampened by the burden that filing a tax return can entail. Having a solid tax strategy and gathering all the information you will need will not only keep you accountable, but improve the overall experience.

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This article originally appeared on GOBankingRates.com: Trade Stocks? These forms are needed to file your tax return

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