How does the IRS track down income from capital gains?

Question

I have started investing in stocks and I am now doing it on my own. I have sold some stocks and now have a realized gained. I am still holding on to stocks that lost value which is an unrealized loss and I understand that taxes will not recognize these losses until I sell these stocks. A buddy of mine who has been doing it for 30 years says he doesnt report them to taxes. How is he escaping from the IRS? He suggested it to me but the thing is I am only 20 yearsold and still under my mom's taxes. I dont want her to get in trouble.

Answer 1

IRS receives a 1099 from the sale of the stock, so the "income" from the stock is reported. The only way your buddy could avoid the tax is by inflating the "cost" of the stock.

Answer 2

Yes you must file an income tax return and report your capital investment transactions. Beginning in 2011 your brokerage firm, in addition to proceeds, and under certain circumstances report additional information will be reporting information to the IRS. Being only 22 is no excuse to not do the right thing. You have been able to vote since age 18 and that is a heavy responsibility. Many 22 year olds may be serving in a war zone and responsible for the lives of others. It is past time that accountability and responsibility is assumed.

Answer 3

Ehm..

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Bye

Answer 4

Brokers report sales to the IRS. You show them on schedule D along with your basis, and calculate your gain or loss. If you don't show a sale, then the IRS computers assume that the sale price is all gain, and if you are over the limit where you need to file a tax return, you get a letter from the IRS assessing the tax, and have to either pay it or else show that your basis was such that you don't owe. You only report the stocks you've sold, not the ones you still hold, on your schedule D.



Your buddy is either under the limit to have to file, or is bs-ing you, or is talking about stocks he still holds and hasn't sold.



Your mom isn't responsible for your taxes even if you're still her dependent, so she wouldn't get in trouble.

Answer 5

When you get any paper from any Financial Inst, it says on the bottom that (This information has been furnished to the IRS). ALSO you need to remember that All forms of 1099 MISC, 1099G and the 1099B which will be send by any broker firms will have another copy will be send to the Treasury/IRS. And after the filing season over, UNCLE SAM computers will compare what we reported as income in our Income Tax Return with the information that IRS received from other sources such as Investment firms, banks etc.

Therefore, the IRS knows exactly what is going on and my suggestion to you not to listen to others who may say BLA BLA BLA, simply file all of your income to avoid any headache.

http://www.irs.gov/newsroom/article/0,,id=170634,00.html

Answer 6

With new purchases, your broker will include your purchase price to IRS along with sale proceeds. The sale proceeds are reported on Form 1099B so IRS knows what you sold the stock for. If you don't report it, IRS will pick it up and send you a nastygram about a year after you file your return and presume you paid nothing for the stock. You don't want that.

Answer 7

1099 B's are issued every year and IRS directly receives them

these report 'proceeds' not your gain or loss, that is up to you to report on Sch D

you are no longer a minor and cannot include your income under the kiddie tax with your mother

you will fill you own tax return and there is no way this man is escaping cap gains taxes unless he incurs losses all the time

IRS directly receives 1099 B's, every year!

Answer 8

When you sell stocks, the brokerage firm most tell the IRS the amount of money that you received for the stock (or the amount for which the stock was sold, even if you left it in your account or reinvested it). If you do not report the amount of gain or loss, then the IRS assumes that your cost was zero are amount of the proceeds from the sale was gain.

Answer 9

And some time other people do NOT tell you the truth about some things in their life that they are doing are do NOT tell you the complete story about how they might be doing something.

When you buy stocks and securities and capital asset you have to use a social security number to be the owner of the stock and each year after the end of the tax year you and the IRS each receive a consolidated copy of the 1099 forms 1099-B shows the sale of any stock during the tax year 1099-INT 1099-DIV 1099-MISC etc and other needed necessary information about your income from the ownership of the stock and the forms have the social security number and should also have the correct name that would be for that SSN at that time of the year.

So failing to report the 1099 information that you receive each year will cause the IRS to assume that the total sales for the tax year was all gains and taxable income to that SSN and taxpayer and will be sending a bill for the dollar $ amount of federal income tax that would be owed on the total sales of stock that was NOT reported on the correct forms schedule D for the past years and now for the 2011 still will end up on the schedule D but you will have start with a new form 8949 Sales and Other Dispositions of Capital Assets for the 2011 tax year during the 2012 tax filing season BUT the information will then end up on the schedule D in the correct section and lines of the schedule D and you will have to use your cost basis to reduce the gross sales prices that the IRS has used on the letter or notice that would be received about this matter.

So if you really should be talking to your mother and let her know about this and keep her updated on what you are doing at this time in your life.

You will still be required to correctly complete you own 1040 income tax return more than likely BUT when you end up having enough of this type of taxable income some of the $ amounts can end up being taxed at your parents marginal tax rate for that tax year.

And this is called the KIDDIE tax for this purpose and time in your life.

Search box at the www.irs.gov website Publication 17 chapter 8 Dividends and Other Distributions



http://www.irs.gov/publications/p17/index.html



http://www.irs.gov/publications/p17/ch08.html#d0e22931



General Information

This section discusses general rules for dividend income.

Tax on investment income of certain children. Part of a child's 2011 investment income may be taxed at the parent's tax rate. If it is, Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, must be completed and attached to the child's tax return. If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate.

Some parents can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose.

For more information about the tax on investment income of children and the parents' election, see chapter 30.



http://www.irs.gov/publications/p17/ch30.html



Chapter 30. Tax on Investment Income of Certain Children

Introduction

This chapter discusses the following two rules that may affect the tax on investment income of certain children.

If the child's interest and dividend income (including capital gain distributions) total less than $9,500, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. (See Parent's Election To Report Child's Interest and Dividends, later.)

If the child's interest, dividends, and other investment income total more than $1,900, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. (See Tax for Certain Children Who Have Investment Income of More Than $1,900, later.)

For these rules, the term “child” includes a legally adopted child and a stepchild. These rules apply whether or not the child is a dependent.

Useful Items - You may want to see:

Publication 929 Tax Rules for Children and Dependents



http://www.irs.gov/publications/p929/index.html



Hope that you find the above enclosed information useful. 12/24/2011

Answer 10

"He suggested it to me but the thing is I am only 20 yearsold and still under my mom's taxes. I dont want her to get in trouble."



I'm glad you don't want to get your mom in trouble, but that is ALSO a concern for you. You are obligated by law to file your taxes correctly. Your "buddy" is blowing smoke.

Answer 11

Your buddy is so FOS that his eyes are brown and it's leaking out of his ears.