Taxes get a bad rap. Every year, people complain when they need to do their taxes (or have them done, as the case may be). Those who do their own taxes lament: "Oh, woe is me, I'm just like Shakespeare, my pain is so... painful. Why? You ask why? It's tax time. That be why."
Am I alone, then, in enjoying taxes? (Did he just say what I think he said? He enjoys taxes? I'm outta here. Click.)
OK. Who's left? Just you and me.
Yes, I enjoy filing taxes. I enjoy organizing the W-2s from my half-dozen jobs this last year, my dividend and interest statements, and my deductions including charity receipts. Then I get a case of Jolt Cola (whatever happened to that sugar-drink?) and sit down on a cardboard box at my computer.
I enjoy entering all the numbers on my Pentium 286 using Intuit. (Intuit's TurboTax, how we love thee. Why in heck aren't you advertising on the Fool right now?) As I gladly enter the numbers, I watch my tax rebate shrink. Finally, two solid days later, my return is done, it's checked for errors, and I file it electronically.
What a feeling of accomplishment every April 15th, at midnight.
But I'd be lying if I said it was easy. There's always a need to reference the Fool and the IRS site on tax law and applicability, even with TurboTax's help. Today, we hope to make your annual tax saga easier by providing investment-related guidance and beating you over the head with links to our free Tax Center.
Did you sell stock or mutual funds in 2002?
If your answer is "no," congratulations. Your taxes in relation to stocks should prove easy. You'll mainly just need to file dividend and perhaps interest information (if you received either), which we'll tackle in a second.
If you sold stock in 2002, you'll need your brokerage statement showing your proceeds, minus commissions. You'll also need to know your cost basis for any investment sold, plus commissions. If you sold stock purchased through a dividend reinvestment plan (DRP), and you had dollar-cost averaged into the investment (buying several times), you'll need to know your cost basis for each individual purchase, including partial shares and dividend reinvestment purchases (which count as normal stock purchases).
Yes, you need to know each individual purchase price. The IRS isn't 100% sadistic, though. You're allowed to add all your purchase costs together for a single investment, and report it that way, when all your proceeds from that investment qualify for a similar tax treatment.
Anything held more than one year qualifies as a long-term investment and will be taxed at the lower rate. Investments sold sooner than 12 months after purchase are considered short term and taxed around your rate of income. On Schedule D, you must report your investment totals for every stock or mutual fund you sold for each time period (long and short term). Even when you're able to add your costs and proceeds together for reporting purposes, make sure you have records of each individual purchase and sale should Sam come knockin' for them.
Now, if you own 300 shares of a stock and only sold 100, you'll need to account for it assuming you sold your earliest purchased shares first. This is called first-in, first-out. So, dig out your oldest purchase statements. When you sell a partial holding, the first shares you acquired make for your cost basis. If you bought all your shares more than one year ago, they'll all qualify for long-term treatment.
If you took losses on your investments last year (long or short term), the losses can be used to offset any stock gains and regular income up to $3,000. Any losses above that amount are carried over into next year.
Dividends and interest
There's good news on the dividend and interest front. You no longer need to file a Schedule B if your dividend and interest income exceeds $400. The new threshold is $1,500. If you received more than $1,500 in dividend and interest income, you'll still file Schedule B. If you received less, this income now gets reported on your regular return. See, taxes do get simpler sometimes.
But there's so much more
The Fool Tax Center covers almost any tax topic related to personal finance and investing, including IRAs, real estate and new laws for the year. (We also have more on Drips and taxes in our Drip area.) Plus, if you have questions, just post them in the Taxes discussion board, where renowned Fool and tax expert Roy Lewis (TMF Taxes) provides answers. How's that for service?
Now I must end this column. I can't take it anymore. I realize that I don't enjoy taxes that much. Not enough to keep writing about them.
Jeff Fischer has no relatives at the IRS and is not a masochist, despite what others may say. The Fool has a full disclosure policy.