Records such as receipts, canceled checks, and other documents that prove an item of income or a deduction appearing on your return should be kept at least until the statute of limitations expires for that return. Usually this is three years from the date the return was due or filed, or two years from the date the tax was paid, whichever is later. There is no period of limitations when a return is false or fraudulent or when no return is filed. You should keep some records indefinitely, such as property records, because you may need them to determine the basis of the property to prove the amount of gain or loss if the property is sold. For more details, refer to Publication 552 Recordkeeping for Individuals, or Tax Topic 305 on Recordkeeping. If you are self-employed, see How long should I keep records?, for additional information.

If you are an employer, you must keep all your employment tax records for at least four years after the tax is due or paid, whichever is later. For additional information, refer to Publication 583, Starting a Business and Keeping Records. People in business often have expenses for travel, entertainment, and gifts. The documentation you should keep for each of these expenses can be found in Publication 463, Travel, Entertainment, Gift and Car Expenses.

References:

• Publication 463, Travel, Entertainment, Gift and Car Expenses
• Publication 552, Recordkeeping for Individuals
• Publication 583, Starting a Business and Keeping Records
• Tax Topic 305, Recordkeeping
• How long should I keep records?

Enter the ordinary dividends from Form 1099-DIV (PDF), box 1a, on line 9a of Form 1040, U.S. Individual Income Tax Return. Enter any qualified dividends from Form 1099-DIV, box 1b, on line 9b of Form 1040. If you have an amount entered in other boxes of your 1099-DIV refer to Form 1040, Schedule D Instructions to see where to report them. If your only capital gains and losses are from capital gain distributions, refer to Form 1040 Instructions.

References:

• Form 1040, Schedule D (PDF), Capital Gains and Losses
• Form 1040 Instructions
• Form 1040, Schedule D Instructions

You can make your first estimated payment by the due date for the period in which the income is received. You can either pay your entire estimated tax by the due date for that period or you can pay it in installments by the due date for that period and the due dates for the remaining periods.

If you are making estimated tax payments you can increase your quarterly estimated tax payments or increase your Federal income tax withholding to cover the tax liability. If you have the proper amount withheld you may not be required to make estimated tax payments nor have to file Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts, with your tax return (as you would if you just increased the remaining estimated tax payments). If you wait and make increased estimated tax payments in the later quarters, you would have to file Form 2210 with your tax return because we do not know when you received the income. Since you really did not receive the income evenly throughout the year, you have to tell us when the income was received by filing Form 2210.

References:

• Publication 505, Tax Withholding and Estimated Tax
• Form 1040-ES (PDF), Estimated Tax for Individuals
• Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts
• Tax Topic 306, Penalty for Underpayment of Estimated Tax

If you first receive income subject to estimated tax during a period other than the first quarter, you must make your first payment by the due date for the period in which the income is received. You can pay your entire estimated tax by the due date for the period in which the income is received, or you can pay it in installments by the due date for that period and the due dates for the remaining periods. However, you should also complete Form 2210 (PDF) Underpayment for Estimated Tax by Individuals, Estates and Trusts, and attach it to your income tax return when you file. Otherwise, you may be assessed an estimated tax penalty by the IRS service center when your return is processed, since estimated tax payments are normally made in four equal installments and the IRS will not know your liability occurred in the fourth quarter. You should check the box on the front page of the Form 2210 to select the Annualized Income Installment Method, and then complete Schedule AI. When you compute the penalty using the numbers from Schedule AI, your penalty will be $0 if you made an adequate payment.

References:

• Form 2210 (PDF), Underpayment of Estimated Tax by Individuals
• Publication 505, Tax Withholding and Estimated Tax

If the $7,000 in tax is a result of a distribution not covered by prepayments of tax, either through income tax withholding or estimated tax payments, you should make an estimated tax payment by January 15th of the next year. If you wait to pay the $7,000 with your return, you may be penalized for an underpayment of estimated taxes. Even if you make an adequate payment of tax by January 15th, you may be assessed an estimated tax penalty by the IRS service center when your return is processed unless you file Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts . This is because estimated tax payments are normally made in four equal installments and the IRS will not know your liability occurred in the fourth quarter unless you explained when the income was received.

You may be subject to the penalty if you owe at least $1,000 in tax after subtracting your withholding and credits from your tax liability, and you did not prepay at least 90% of your current year's tax or 100% of your previous year's tax. The 100% is increased to 110% for higher income taxpayers. Refer to chapter 2 of Publication 505 for the income amounts to which the higher percentage applies.

If you make an adequate payment by January 15th but made no earlier estimated tax payments, use Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts, to compute your penalty. Check the box on the front page selecting the Annualized Income Installment Method, and then complete Schedule AI . When you compute the penalty using the numbers from Schedule AI, your penalty will be $0 if you made an adequate payment. Even if you did not make the January 15th payment or made an inadequate payment, the annualized income method on Form 2210 may significantly reduce the estimated tax penalty.

For more information on estimated tax payments and the underpayment of estimated tax penalty, refer to Publication 505, Tax Withholding and Estimated Tax.

References:

• Publication 505, Tax Withholding and Estimated Tax
• Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts

If, during the 5-year period ending on the date of sale, you owned the home for at least 2 years and lived in it as your main home for at least 2 years, you can exclude up to the maximum dollar limit. However, you cannot exclude the portion of the gain equal to depreciation allowed or allowable for periods after May 6, 1997. This gain is reported on Form 4797 (PDF),Sale of Business Property. Refer to Publication 523, Selling Your Home, and Form 4797 (PDF), Sale of Business Property, for specifics on calculating and reporting the amount of gain.

References:

• Publication 523, Selling Your Home
• Publication 527, Residential Rental Property
• Form 4797 (PDF), Sale of Business Property

When the old stock and the new stock are identical the basis of the old shares must be allocated to the old and new shares. Thus, you generally divide the adjusted basis of the old stock by the number of shares of old and new stock. The result is your new basis per share of stock. If the old shares were purchased in separate lots for differing amounts of money, the adjusted basis of the old stock must be allocated between the old and new stock on a lot by lot basis.

References:

• Publication 550, Investment Income and Expenses
• Tax Topic 409, Capital Gains and Losses

You need to determine what your basis is in the company stock on the date of the split. The new shares assume part of your basis in the company stock on that date. You must divide the adjusted basis in the old stock by the number of shares of old and new stock. The result is your basis for each share of stock.

For example, if you owned two shares of company stock with a basis in one at $30 and the other $45, and the company declares a three for one stock split, you now have six shares of stock. Three of the shares will have a basis of $10, and three will have a basis of $15.

Because this is an employee stock purchase plan, you may have to report some or all of the gain on the sale of this stock as ordinary income (wages). For more information about employee stock purchase plans, see Publication 525, Taxable and Nontaxable Income.

References:

• Publication 550, Investment Income and Expenses
• Tax Topic 409, Capital gains and losses
• Publication 525, Taxable and Nontaxable Income

Any shares or fractional shares purchased and sold during the current tax year are short-term capital assets. For shares purchased in the year previous to the tax year to be considered long-term, the holding period must be more than one year.

References:

• Publication 550, Investment Income and Expenses
• Tax Topic 404, Dividends

Yes. You can use your total net loss to reduce your income dollar for dollar, up to the $3000 limit ($1,500 if you are married and file a separate return).

For more information on capital gains and losses and capital loss carryovers, refer to Chapter 4 of Publication 550, Investment Income and Expenses.

References:

• Publication 550, Investment Income and Expenses
• Tax Topic 409, Capital gains and losses

A loss carryover maintains its character as long-term or short-term and must first be used against gains, if any, in its own category, but can then offset net gains from the other category, as well as up to $3,000 ($1,500 if married filing separate) of ordinary income. If, for example, your only long-term gain or loss is the long-term capital loss carryover, then line 16 of Form 1040, Schedule D (PDF), which nets the net short-term gain or loss against the net long-term gain or loss, will apply your loss carryover against your short-term gain. After that, any remaining net loss will be allowable as a deduction against up to $3,000 ($1,500 if married filing separate return) of your ordinary income. The remainder will be available to be carried over to the following year as long-term loss.

References:

• Publication 550, Investment Income and Expenses
• Tax Topic 409, Capital gains and losses

No, long-term capital gains and losses must first be combined to arrive at net long-term gain or loss before the result can be netted against the net short-term gain or loss. If you follow the Form 1040, Schedule D (PDF), Capital Gains and Losses, Parts 1 and 2, line-by-line, the form will perform the netting for you in this order.

References:

• Publication 550, Investment Income and Expenses
• Tax Topic 409, Capital gains and losses

Before a loss from one category, short or long term, can offset gain from the other category, the losses and gains from each category must be combined to arrive at a net gain or loss from that category. Then, the net gain or loss from each category is combined.

When you carry a capital loss over to the following year, it retains its character as long-term or short-term and must be first combined with the other entries in its category. There is a capital loss carryover worksheet each year in the Form 1040, Schedule D Instructions.

Refer to Reporting Capital Gains and Losses in Publication 550, Investment Income and Expenses .

References:

• Publication 550, Investment Income and Expenses
• Tax Topic 409, Capital gains and losses

No, you generally do not need to pay tax on the additional shares of stock you received due to the stock split. You will need to adjust basis per share of the stock. Your overall cost basis has not changed, but your per share cost has changed.

You will have to pay taxes if you have gain when you sell the stock. Gain is the amount of the proceeds from the sale, minus sales commissions, that exceeds the adjusted basis of the stock sold.

References:

• Publication 550, Investment Income and Expenses
• Tax Topic 409, Capital gains and losses

If a day trader is engaged in the business of trading, the day trader files a Schedule C as any other taxpayer engaged in a business that requires the filing of a Schedule C. There is no publication specific to day traders. But see the Form 1040, Schedule D Instructions. The section "Traders in Securities" has information for day traders.

Internal Revenue Code section 475(f) and Revenue Procedure 99-17 apply only to traders who elect to use the mark-to-market method of Accounting.

References:

• Publication 550, Investment Income and Expenses
• Publication 535, Business Expenses
• Form 3115 (PDF), Application for Change in Accounting Method
• Form 1040, Schedule D Instructions
• Internal Revenue Code § 475(f)
• Revenue Procedure 99-17

You would have to report any capital gains realized on the sale. Even assuming this transaction meets the requirements of an exchange, rather than a sale, the exchange of shares of one fund for those of another is a taxable exchange. This is true even if both funds are within the same family of funds.

References:

• Publication 564, Mutual Fund Distributions

If a child is 14 years old or older and has a requirement to file an income tax return, he or she would report dividends and capital gains no differently than any other taxpayer. If the child is under age 14 and his or her only income is from interest and dividends (including capital gain distributions), the child's parent can make an election to include the income on the parent's return. If the parent make this election, then the child does not have to file a return. The election is made on Form 8814 (PDF), Parent's Election To Report Child's Interest and Dividends.

In order to make the election under Form 8814,

1. the child must be required to file a return,
2. the dividend and interest income cannot exceed $8,000
3. there must be no estimated tax payment made for the year and no prior overpayment applied to the tax year under the child's name and social security number,
4. there must be no federal tax taken out of the child's income under the backup withholding rules, and
5. the parent must be the parent whose return is used for the special tax rules for children under 14.

If a child under the age of 14 has investment income and the parents do not make the above election, the child reports the income as any other taxpayer would. Special rules on how the investment income is taxed, however, may apply. A child under the age of 14 with investment income (interest, dividends, capital gains, etc.) of more than $1,600 may be subject to the parent's tax rate. The special tax computation is figured on Form 8615 (PDF), Tax for Children Under Age 14 Who Have Investment Income of More Than $1,600.

For more information, refer to Publication 929, Tax Rules for Children and Dependents

References:

• Form 8814 (PDF), Parent's Election To Report Child's Interest and Dividends
• Form 8615 (PDF), Tax for Children Under Age 14 Who Have Investment Income of More Than $1,600
• Publication 929, Tax Rules for Children and Dependents

Yes, you report the sale of your shares on Form 1040, Schedule D (PDF),Capital Gains and Losses. Generally, whenever you sell, exchange, or otherwise dispose of a capital asset, you report it on Schedule D.

If the share price were constant, you would have neither a gain nor a loss when you sell shares because you are selling the shares for the same price you purchased them.

If you actually owned shares that were later sold, the fund or the broker should have issued a Form 1099-B. That form is issued without regard to whether there is a gain or loss on the sale. It reports a sale or exchange of an investment asset and sales proceeds.

References:

• Publication 564, Mutual Fund Distributions

Either write the name of the average basis method used as a notation on Form 1040, Schedule D (PDF), Capital Gains and Losses, or attach a sheet to the Schedule D showing in detail how you computed the basis of the shares sold. Whenever you attach a statement to your return, include your name(s) and social security number(s). Also include "AVGB" in column (a) of Schedule D.

References:

• Publication 564, Mutual Fund Distributions
• Form 1040, Schedule D Instructions

A mutual fund is a regulated investment company that pools funds of investors allowing them to take advantage of a diversity of investments and professional asset management. You own shares in the fund, but the fund owns assets such as shares of stock, corporate bonds, government obligations, etc. One of the ways the fund makes money for its investors is to sell these assets at a gain. If the asset was held by the mutual fund for more than one year, the nature of the income is capital gain, which gets passed on to you. These are called capital gain distributions, which are distinguished on Form 1099-DIV (PDF), from income that is from other profits, called ordinary dividends.

Capital gains distribution are taxed as long term capital gains regardless of how long you have owned the shares in the mutual fund. If your capital gains distribution is automatically reinvested, the reinvested amount is the basis of the additional shares purchased.

References:

• Publication 564, Mutual Fund Distributions

Capital gain distributions from a mutual fund are by definition long-term. That's why they appear only in Part II of Form 1040, Schedule D (PDF), Capital Gains and Losses. The annual statement you receive from your mutual fund may list short-term capital gains, but your Form 1099-DIV (PDF) will show those amounts as ordinary dividends in box 1a.

Ordinary dividends (which include the mutual fund's profits from short term capital gains) are reported on Form 1040, Schedule B (PDF), Interest & Dividend Income, or Form 1040A, Schedule 1 (PDF), Interest and Ordinary Dividends, if the total is over $1500. You enter the total ordinary dividends on line 9a of Form 1040 or line 9a of Form 1040A.

The Form 1099-DIV (PDF) has box 1b for "Qualified Dividends." This box shows the portion of the amount in box 1a that may be eligible for the 15% or 5% capital gains rates. See the instructions for Form 1040 / Form 1040A for how to determine the eligible amount and report this amount on line 9b of your Form 1040 or Form 1040A.

Refer to the line 13 instructions of Form 1040 for exceptions when you can enter capital gain distributions directly on line 13 of Form 1040A without having to file Form 1040, Schedule D (PDF).

References:

• Publication 564, Mutual Fund Distributions

You cannot. You did not sell the assets that produced this income, the mutual fund did. All income that is taxed as ordinary income flows through to you as ordinary dividends, whether the income is from interest, dividends, or the sales of short-term capital assets.

In the same manner, you report capital gain distributions as long-term capital gains on your return regardless of how long you have owned the shares in the mutual fund. This is because the asset was held and then sold by, the mutual fund, not by you.

Report your total ordinary dividends (including the short-term capital gains in your mutual fund) on Form 1040, line 9a, or Form 1040A, line 9a, with your other ordinary dividends. You may also have to file Form 1040, Schedule B (PDF), Interest & Dividend Income, or Form 1040A, Schedule 1 (PDF), Interest and Ordinary Dividends.

References:

• Tax Topic 409,Capital gains and losses
• Publication 550, Investment Income and Expenses

Only the capital gain distributions are reported on Form 1040, Schedule D (PDF),Capital Gains and Losses . They are reported in Part II as long-term capital gains. Short-term capital gains are taxed as ordinary income and are therefore treated as ordinary dividends on Form 1099-DIV. They are reported on line 9a of Form 1040 or Form 1040A.

Because many mutual fund companies send out annual fund statements as well as Forms 1099-DIV, or "consolidated statements," some confusion has arisen regarding short-term capital gains. The purpose of Form 1099-DIV is to provide you with information to report income correctly on your tax return.

The annual report often breaks down the income from fund activity as dividends, tax-exempt dividends, short-term capital gains, long-term capital gains, returns of capital, and undistributed capital gains. Form 1099-DIV, on the other hand, will show only ordinary dividends (which includes the fund's short-term capital gains), capital gain distributions, and returns of capital (nontaxable distributions), and qualified dividends.

Mutual fund companies may combine the annual fund information with the Form 1099-DIV information into a consolidated statement. If this is what you receive, look for the part of the statement identified as the Form 1099-DIV or that contains language such as "in lieu of Form 1099-DIV."

References:

• Tax Topic 409, Capital gains and losses
• Publication 564, Mutual Fund Distributions

No. The kind of income the assets in the fund earn is tax-free. When you sell your shares in the fund, a taxable gain or deductible loss is realized on the sale. This is true also for the sale of tax-exempt securities such as municipal bonds.

References:

• Tax Topic 409, Capital gains and losses
• Publication 564, Mutual Funds Distribution

You should make an estimated tax payment by January 15th of the next year. If you wait to pay the $7,000 with your return, you may be penalized for an underpayment of estimated taxes. Even if you make an adequate payment of tax by January 15th, you may be assessed an estimated tax penalty by the IRS service center when your return is processed. This is because estimated tax payments are normally made in four equal installments and the IRS will not know your liability occurred in the fourth quarter unless you file Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts.

You may be subject to the penalty if you owe at least $1,000 in tax after subtracting your withholding from your estimated tax liability, and you did not prepay at least 90% of your current year's tax or an amount equal to 100% of your previous year's tax. (The latter percentage is higher for higher-income taxpayers with adjusted gross incomes from the previous year of more than $150,000.)

If you make an adequate payment by January 15th but made no earlier estimated tax payments, use Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts, to compute your penalty. Check the box on the front page selecting the Annualized Income Installment method, and then complete Schedule AI on page 4. When you compute the penalty on page 2 of that form using the numbers from Schedule AI, your penalty will be $0. Even if you did not make the January 15th payment, the annualized income method on Form 2210 may significantly reduce the estimated tax penalty if the income for which there was no prepayment of tax was earned in the third or fourth quarters of the year.

For more information on estimated tax payments and the underpayment of estimated tax penalty, refer to Publication 505, Tax Withholding and Estimated Tax.

References:

• Publication 505, Tax Withholding and Estimated Tax
• Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates and Trusts

What you have heard about is a like-kind exchange. A like-kind exchange, when properly executed, represents a way to postpone the recognition (taxation) of gain essentially by shifting the basis of old property to new property. If, in addition to giving up like-kind property, you pay money in a like-kind exchange, you still have no recognized gain or loss. The basis of the property received is the basis of the property given up, increased by the money paid. There are several rules and restrictions that must be strictly adhered to in order for a successful exchange to take place. Deferred exchanges will be treated as a sale rather than an exchange to the extent that the taxpayer actually or constructively receives money or other (not like kind) property in exchange for the like-kind property given up. For more information refer to Chapter 1, Gain or Loss, inPublication 544, Sales and Other Disposition of Assets , and Form 8824 (PDF) Instructions, Like-Kind Exchanges.

References:

• Publication 544, Sales and Other Dispositions of Assets
• Form 8824 (PDF), Instructions, Like Kind Exchanges

Report the exchange of like-kind property on Form 8824 (PDF), Like-Kind Exchanges. The instructions for the form explain how to report the details of the exchange. Report the exchange even though no gain or loss is recognized.

If you have any taxable gain, resulting from the transaction, because you had a partially deferred exchange or otherwise received money or unlike kind property, report it on Form 4797 (PDF), Sale of Business Property, and Form 1040, Schedule D (PDF), Capital Gains and Losses. Refer to Chapter 1, Gain or Loss, in Publication 544, Sales and Other Dispositions of Assets, which has a detailed section on qualifying like-kind exchanges.

References:

• Publication 544, Sales and Other Dispositions of Assets
• Form 8824 (PDF), Like-Kind Exchanges
• Form 4797 (PDF), Sale of Business Property
• Form 1040, Schedule D (PDF), Capital Gains and Losses

You may be able to exclude your gain from the sale of your main home that you have also used for business or to produce rental income if you meet the ownership and use tests, detailed in Publication 523, Sale of Your Home.

However, if you were entitled to take depreciation deductions because you used your home for business purposes or as rental property, you cannot exclude the part of your gain equal to any depreciation allowed or allowable as a deduction for periods after May 6, 1997. (Note: If you can show by adequate records or other evidence that the depreciation deduction allowed (did deduct) was less than the amount allowable (could have deducted), the amount you cannot exclude is the smaller of those two figures.)

The gain, exclusion, and depreciation recapture should be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses, as described in Publication 523, Selling Your Home.

References:

• Publication 523, Selling Your Home
• Form 1040, Schedule D (PDF), Capital Gains and Losses

The answer to this question has many variables. Publication 541,Partnerships,"Disposition of Partner's Interest" should provide the information needed.

References:

• Publication 541, Partnerships

Generally, capital gains received by a nonresident alien not present in the United States for 183 days or more are not taxable in the United States. Certain gains, however, are subject to the 30% withholding rate or if applicable, a reduced tax treaty rate on the gross amount of the following items:

1. Gains on disposal of timber, coal, or domestic iron ore with a retained economic interest, unless an election is made to treat those gains as income effectively connected with a U.S. trade or business,

2. Gains on contingent payments received from the sale or exchange after October 4, 1966, of patents, copyrights, secret processes and formulas, goodwill, trade marks, trade brands, franchises, and other sale property,

3. Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966, and

4. Certain gains from the sale or exchange of original issue discount obligations issued after March 31, 1972.

Dividends are withheld upon at the 30% or lower tax treaty rate. If your withholding is not at the correct rate, a nonresident alien should file Form 1040NR, U.S. Nonresident Alien Income Tax Return, to claim a refund of excess withheld taxes.

References:

• Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entity
• Publication 519 U.S. Guide for Aliens
• Publication 597, Information on the United States-Canada Income Tax Treaty
• Publication 901, U.S. Tax Treaties
• Form 1040NR, U.S. Nonresident Alien Income Tax Return
• Form 1040NR-EZ U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents