Question

Spencer Duck (SSSN 000-22-111) is single and his eight year old son, Mitch, lives with him nine months of the year in a rented condominium at 321 Hickory Drive in Ames, Iowa. Mitch lives with his mom, Spencer's Ex-wife, during the summer months. His mother provides more than half of Mitch's support and Spencer has agreed to allow her to claim Mitch as her dependent. Spencer has a salary of $39,000 and itemized deductions of $4,000. Taxes withheld during the year amount to $3,221. On July 14 of the current year, he sold the following assets: -Spencer received a K-1 from a partnership indicating that his share of the partnership STCL is $200 -Land was sold for $35,000. The land was received as a property settlement on January 10,2001, when the land's FMV amounted to $30,000. His ex-wife's basis for the land, purchased on January 10, 1991, was $18,600. -A personal-use computer acquired on March 2 last year for $4,000 was sold for $2,480. -A membership card for a prestigious country club was sold for $8,500. The care was acquired on October 10,1993, for $6,000. -Marketable securities held as an investment were sold for $20,000. The securities were inheritied from his uncle, who died on March 10 of the current year when FMV of the securities was $21,000. The uncle purchased the securities on May 10, 1990, for $10,700. In addition to the above sales, Spencer received a $100 refund of state income taxes paid last year. Spencer used the standard deduction last year to computer his tax liability. Prepare Form 1040 and Schedule D for the current year.

Answer 1

Use Schedule D (Form 1040) to report the following. The sale or exchange of a capital asset not reported on another form or schedule. Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit.

If your only capital gains income is cap gains distribution from a mutual fund, reported on a 1099-DIV, then scheduled D is not  requierd and it is not prepared. The capital gain is reported directly on Form 1040 and the "Schedule D not required.

Internal Revenue Service (“IRS”) Form 8949 and Schedule D are the Capital Gains and Losses section of the Form 1040. Schedule D is used to calculate and report the sale or exchange of a capital asset. To start, you will need to fill out Form 8949. This form allows you to total your gains and losses for various investments and assets obtained during the year. On your Schedule D form, you will use these values to figure out if you had a net loss/gain for the year in terms of short and long term investments.

Then we can examine how fill the scheduled D form:

1.Separate short term and long term gains and losses

This is mainly what you're tracking in Form 8949 and Schedule D. Your gains and losses are based on your capital assets. Capital assets are anything you own that can make or lose money throughout the year. They include things like your home, car, artwork, and collectables. They also includes investment assets like stocks, bonds, and some properties

• The first section of Form 8949 includes your short term gains and losses. These include any assets you've bought and sold within a single twelve-month period. For a)example, say you bought 8 stocks in the Nestle corporation in April of 2015. You sold these stocks in October of 2015. This would be considered a short term gain or loss.
• The second section of Form 8949 covers long term gains and losses. These are assets you've held for more than one year. For example, if you've owned stocks in GM for 5 years, you would record the gains and losses made from those stocks in the second part of Form 8949.
• Go through all your capital assets. Make a list of all assets sold during the year of filing, determine the holding period by the difference between the sell and purchase dates, and separate into short and long-term categories. This will simplify the process when you begin filling out your tax forms.

2)Gather specific details of each capital asset.

  These details are important to calculate whether you had a net gain or loss for a year. Before you even start filling out Form 8949, gather this information. Having it ahead of time will make the process go smoother

You will need to know the date when each asset was purchased or acquired, as well as the price.
If you sold an asset, you need to know the date it was sold. You should also include the price for which the asset was sold.

3)Determine the cost basis of your assets.

This is the amount you paid for the asset, as well as any other fees associated with the asset. Take your time here. While determining cost basis may seem simple, there are some calculations that go into the process, especially when stocks have increased or decreased in value

• In the event you received these shares as a gift, you would give the cost basis based on their original value. Even if you did not pay that value, it can still affect what you will be taxed on in the coming year.
  • The basis for assets received as a gift is the donor's basis adjusted for amount paid in gift tax. Refer to IRS Publication 551 for more information.
• Other factors can affect the cost basis. If your shares appreciated in value, and you then sold them, you would need to figure out how much of this sale is subject to taxes. You would need to determine the new cost basis. For example, the shares rose to $15/share when you sold, giving you $15,000. The extra $5,000 may be subject to a capital gains tax.

There will be a different cost basis and holding period for assets received by inheritance. Refer to IRS Publication 550 for more information.

4) Fill out the long and short term sections on Form 8949.

You will use the information gathered here. For each asset, you will give the name of the asset, or the company associated with the stocks or bonds. You will also put in the buy and sell dates, the purchase price, the sales price, and the cost basis.

Remember, long term and short term gains and losses are different. Form 8949 includes different sections for long and short term assets. Make sure you are filling in the right sections as you complete Form 8949.

5)Calculate the total gains and total losses for each asset. Eventually, this will help you determine if you had a net gain or net loss for the year. Go through each asset on both the short term and long term gains/losses sections. Figure out whether each asset resulted in a gain or a loss for the year.

• If you gathered all your information ahead of time, things should be simple from here. You simply need to subtract the costs associated with the asset from the money earned from the asset.

Work slowly and use a calculator. Check your answers several times. You want to make sure your numbers are accurate when filling out your taxes