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Form 8949 is used to report the sale or exchange of capital assets, such as stocks, real estate, or cryptocurrencies to the IRS. It details the purchase and sale dates for each transaction, as well as the proceeds, cost basis and any adjustments. This information is then transferred to Schedule D, where gains or losses are totaled for tax purposes, with sections for short-term and long-term transactions. Accurate reporting on Form 8949 is essential for properly calculating capital gains or losses and complying with IRS requirements.

","

If you want to lower your taxes on investments, a financial advisor can optimize your portfolio to lower your tax liability.

","

What Is Form 8949?

","

Form 8949 is an IRS tax document used to report gains and losses from the sale or exchange of capital assets. The form captures detailed information about each transaction, such as dates the asset was acquired and sold, sales proceeds, cost basis and any necessary adjustments. These adjustments account for factors like disallowed losses from wash sales (selling a security at a loss and rebuying it or a substantially identical security to prevent the loss from being deducted for tax purposes) or adjustments related to inherited property.

","

One of the key purposes of Form 8949 is to categorize transactions by how they are taxed. It separates short-term gains or losses (from assets held for one year or less) from long-term gains or losses (from assets held longer than one year), which are taxed at different rates. Taxpayers must also indicate whether and how the transactions were reported to the IRS on Form 1099-B.

","

By requiring taxpayers to list individual sales, Form 8949 provides a comprehensive view of all taxable events, helping to ensure proper calculations when completing Schedule D.

","

Who Needs to File Form 8949?

","

Anyone who sold capital assets during the tax year may need to complete Form 8949, especially if the transactions are reported on Form 1099-B or 1099-S, or were not reported to the IRS at all. This includes:

","

Individuals selling stocks, bonds, cryptocurrency, or other capital assets
Homeowners who sold real estate that was not their primary residence

","

If there are multiple transactions, each needs to be listed, even if there were no profits earned. Any short-term or long-term capital gains or losses must be categorized based on how long the asset was held.

","

Completing Form 8949: Parts I and II

","

Form 8949 is divided into two parts to separate short-term and long-term transactions.

","

Part I is for short-term gains and losses, which apply to assets held for one year or less. Part II covers long-term gains and losses, applying to assets held for more than one year. This distinction is significant because short-term gains are taxed at ordinary income rates, while long-term gains generally benefit from lower, preferential tax rates.

","

Both parts of the form require taxpayers to report transactions based on whether the sales were reported on Form 1099-B. There are three checkboxes in both Part I and Part II:

","

Box A: For transactions reported on Form 1099-B with cost basis provided.
Box B: For transactions reported on Form 1099-B without cost basis.
Box C: For transactions not reported on Form 1099-B.

","

Accurately assigning transactions to the right part and box helps ensure proper tax treatment.

","

Once all transactions are listed, totals from both parts are carried over to Schedule D, where gains or losses are totaled. If the form includes adjustments (e.g., for wash sales), those must be listed in the adjustment column with appropriate codes.

","

Reporting Gains and Losses

","

","

Each line of Form 8949 requires detailed information about the asset sold, including:

","

Description of the asset: Specify the security, cryptocurrency or property
Date acquired: The original purchase date
Date sold or disposed: When the sale or transfer occurred
Proceeds: The amount received from the sale
Adjustments, if any: Adjustments can be made for things like transaction fees or wash sales

","

After listing these details, subtract the cost basis from the proceeds to determine the gain or loss, which you will then list in column (h). Note that wash sale rules may apply if a similar asset was bought shortly before or after selling the original one, disallowing the loss for that year.

","

When to Use Adjustment Codes

","

In some cases, an adjustment to the gain or loss is necessary. For example, if a broker didn’t report the correct cost basis on the 1099-B or a wash sale occurred, adjustments will need to be reported on Form 8949.

","

Common adjustment codes include:

","

Code W: For a wash sale
Code B: When the basis reported by the broker on Form 1099-B is incorrect
Code O: For cases involving adjustments not covered elsewhere
Code T: You received a Form 1099-B (or substitute statement) and the type of gain (or loss) shown in box 2 is incorrect

","

If an adjustment is made, enter the appropriate code in column (f) and the amount of the adjustment in column (g).

","

Transferring Totals to Schedule D

","

Once all transactions are listed and gains or losses are calculated, the totals from Part I and Part II of Form 8949 need to be carried over to Schedule D. This form summarizes the overall net capital gains and losses, distinguishing between short-term and long-term transactions.

","

If the total capital losses exceed gains for the year, taxpayers can deduct up to $3,000 ($1,500 for married individuals filing separately) of the loss against other income. Any remaining losses can be carried forward to future tax years.

","

Bottom Line

","

","

Form 8949 plays a role in organizing and reporting the sale of capital assets, giving taxpayers a way to track gains and losses while meeting IRS requirements. By listing each transaction, including purchase and sale dates, proceeds and cost basis, it helps determine taxable amounts and provides space for adjustments, such as wash sales or discrepancies in 1099-B data. Transferring these totals to Schedule D offers a summary of short-term and long-term gains or losses, allowing for proper calculation of taxes owed or deductions available.

","

Tax Planning for Investments

","$44","

Photo credit: ©iStock.com/PixelsEffect, ©iStock.com/shih-wei, ©iStock.com/Apiwan Borrikonratchata

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Required minimum distributions, or “RMDs,” are the government’s way of getting its tax money back on retirement accounts. Starting at age 73, anyone with a pre-tax retirement account such as an IRA or a 401(k), must begin must begin withdrawing a minimum amount from this account each year. This triggers a tax event, generating the income […]

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","

Required minimum distributions, or “RMDs,” are the government’s way of getting its tax money back on retirement accounts.

","

Starting at age 73, anyone with a pre-tax retirement account such as an IRA or a 401(k), must begin must begin withdrawing a minimum amount from this account each year. This triggers a tax event, generating the income taxes that you haven’t yet paid. It’s the IRS’ way of making sure that, sooner or later, you pay taxes on your pre-tax retirement contributions. Partially for that reason, RMDs don’t fully apply to post-tax accounts such as a Roth IRA.

","

But continued employment can be an exception to this rule – for certain account types. Even if you have reached the age cutoff, you do not have to begin taking RMDs from an employer-sponsored retirement plan as long as you still work for the employer sponsoring the plan. This is true even if you have dropped down to part-time work. But individual retirement accounts (IRAs) are a different story.

","

Here’s what you need to know.

","

A financial advisor can help you develop a plan to minimize taxes in retirement. Talk to a financial advisor today.

","

What Are Required Minimum Distributions?

","

Starting at age 73, you must begin withdrawing money from any pre-tax retirement accounts that you hold, including IRAs, 401(k)s, SEP IRAs, 403(b)s and any other similarly-situated portfolios. These withdrawals are taxed the same as any other retirement fund withdrawals, so they are part of your taxable income for the year.

","

This rule does not apply to Roth IRA plans. Effective as of 2024, it will also no longer apply to Roth 401(k) and Roth 403(b) plans either, although RMD rules do apply to those plans for tax year 2023. All inherited Roth plans are still subject to the 10-year withdrawal rule.

","

This is called a “required minimum distribution,” or “RMD.” Previously, it applied starting at age 70 1/2. The SECURE 2.0 Act raised this age to 72 and then, from December 31, 2022, to age 73.

","

You must take your minimum distribution by the end of each year, although how you structure those withdrawals is at your discretion. The IRS determines the amount you must withdraw from each portfolio using a formula that weights the portfolio’s balance against your age and life expectancy. You may take more than the minimum from your portfolio, and most households do, but you pay either a 10% or 25% tax penalty if you take less than the minimum.

","

Talk to a financial advisor about the tax implications of your portfolio.

","

Required Minimum Distributions and Working

","

Continued employment can be an exception to RMD rules.

","

If you hold an individual retirement account, such as an IRA or SIMPLE IRA, and are over the cutoff age you must take your required minimum distributions. This is true even if you are still working in any capacity.

","

However you can delay taking RMDs from an employer-sponsored plan, such as a 401(k) or a 403(b), if you still work for that employer. There are a couple of specific requirements here:

","

You must be employed by the company, not contracting
You can only delay taking minimum distributions from a plan your employer sponsors
You cannot own 5% or more of the employer sponsoring this plan

","

There are no minimum hours to the employment rule. So, for example, say that you have stepped down from full-time to part-time. You can still delay taking your required minimum distributions until you fully retire.

","

But the current-employer rule is an important one. For example, say that you have retired but then take a part-time job at your local bookstore. You must take RMDs from your former employer’s 401(k) plan. The fact that you have started working somewhere else doesn’t change that requirement.

","

The same is true of any retirement plans you hold with former employers. The fact that you can defer RMDs from one employer-sponsored plan will not affect your requirements for other, previous employers’ plans. Although you may be able to get around this issue by rolling a former employer’s retirement plan to your new employer’s plan.

","

So, here, you are 75 and still working. The answer, then, is this: You can avoid taking RMDs from any retirement plan that your current employer sponsors. If you have a 401(k) or other plan with this employer, you don’t have to take distributions from it. If you have an IRA or a retirement plan with a former employer, you do have to take distributions from those.

","

If you’d like to discuss your personal situation with a financial advisor, get matched today.

","

Bottom Line

","

Continued employment can be an exception to the rules around required minimum distributions. You don’t have to take distributions from a plan that your employer sponsors as long as you keep working for that employer.

","

Retirement Withdrawal Tips

","$60","

Photo credit: ©iStock.com/Moon Safari

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Getting a tax refund can seem like a financial windfall, but it means you’ve overpaid your taxes and given the government an interest-free loan. While some taxpayers prefer to receive a lump sum refund, others view tax overpayments as a missed opportunity to have their money work for them. That’s because the extra money paid to the IRS could be invested or saved throughout the year, generating interest instead of sitting idly in government coffers. Avoiding a tax overpayment often comes down to figuring out the correct amount that should be withheld from your paycheck.

","

A financial advisor with tax expertise can help you optimize your tax strategy and potentially save you money in the long run. Connect with a fiduciary advisor today.

","

How Do You End Up Overpaying Your Taxes?

","

Taxes are a complex and often daunting aspect of financial management. Many individuals find themselves inadvertently overpaying on their taxes due to a lack of understanding or attention to detail regarding their tax obligations. The common causes of overpayment can range from failing to adjust withholdings after significant life events to misunderstanding the tax code.

","

For instance, getting married can impact your federal tax bracket and available deductions, while the arrival of a new child might qualify you for additional credits, such as the Child Tax Credit. If these life events are not accounted for by adjusting tax withholdings, one could end up paying more taxes than necessary.

","

Furthermore, income changes from job loss, retirement or a transition to part-time work could also send you into a lower tax bracket and result in a tax overpayment. Staying informed and managing withholdings are both paramount in avoiding overpayment of taxes.

","

Strategies to Avoid Tax Overpayment

","

","

Considering the time value of money, money at your disposal now is inherently more valuable than the same amount in the future due to its potential earning capacity. Consequently, overpaying taxes is akin to lending the government money but receiving no interest for the loan. Doing so deprives yourself of the earnings that could have been accumulated had you saved or invested the extra money you paid the IRS.

","

To prevent overpayment of taxes, adjusting your tax withholdings is a wise decision. Tax withholdings refer to the portion of your income that your employer deducts from your paycheck to cover your federal and state income taxes, as well as other applicable taxes like Social Security and Medicare. These income tax withholdings are based on information provided on your W-4 form, which you complete when starting a new job or whenever your personal or financial circumstances change.

","

Tools like the IRS tax withholding estimator are invaluable in helping estimate the correct amount to withhold from your paycheck. This tool considers factors such as income, deductions and tax credits to help you make an informed decision. By accurately adjusting your withholdings, you can avoid overpaying taxes and giving the government an interest-free loan.

","

Life events such as marriage, divorce or receiving an inheritance can significantly alter your tax situation. It’s important to reassess your withholdings periodically – not just during these events – to ensure they reflect your current financial circumstances.

","

Meanwhile, itemized deductions, such as mortgage interest, property taxes and charitable contributions, as well as tax credits like the earned income tax credit (EITC) and child tax credit, can lower your taxable income and affect your tax withholdings. Reviewing and updating your deductions and credits can ensure accurate withholding amounts.

","

Lastly, stay informed about changes to tax laws and regulations that may affect your withholdings. Tax reforms, adjustments to tax brackets, and updates to withholding tables can impact the amount of tax withheld from your paycheck.

","

What Happens If You Overpay?

","

","

When the IRS identifies this overpayment during the processing of a tax return, the usual course of action is to issue a refund for the excess amount.

","

The IRS communicates with taxpayers about overpayments of estimated taxes through the CP24E notice, an official statement that outlines the overpayment on a tax return and the subsequent adjustments made.

","

Upon receiving the CP24E notice, taxpayers have the opportunity to review the changes and ensure that the final assessment aligns with their financial records.

","

What to Do With Your Refund

","

If you do end up overpaying your taxes, you’ll have several different options for receiving this reimbursement from the IRS. You can:

","

Apply a portion or all of your refund to the following year’s tax return
Receive your refund via direct deposit
Receive your refund in a check
Purchase Series I Savings Bonds with your refund

","

Bottom Line

","

A big tax refund can seem like a financial boon, but it likely means that you’ve overpaid your taxes and forfeited the opportunity to put that extra money to work. To avoid this, consider updating your tax withholdings and revisiting your allowances following major life events.

","

Tax Season Tips

","$78","

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Unearned income, also known as passive income, is derived from sources other than employment or business operations and can act as a financial safety net during times of job loss or financial crisis. It can also be a significant source of income during retirement. Unearned income is sometimes taxed differently than earned income. You might be able to use unearned income as a way to not just earn more during your retirement years but also as a tax planning strategy. For that, you may want to talk to a financial advisor.

","

How Unearned Income Works

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Unearned income refers to the money you receive without engaging in active work or labor for it. It’s often generated when individuals invest their resources, such as money or property and receive a return without putting in additional work. For example, investing in the stock market can generate dividends, which is a form of unearned income.

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Unearned income works on the principle of investing resources to receive a return without additional work. Let’s take the stock market for instance. When you invest in a company’s stocks, you become a shareholder. As a shareholder, you are entitled to a portion of the company’s profits, commonly known as dividends. These dividends, which you receive without actively working for the company, are a form of unearned income.

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Another common form of unearned income is rental income. If you own a property and rent it out, the rent money you receive is considered unearned income. You’re not actively working each day to earn this income; instead, it’s your property that’s working for you.

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Unearned income also includes interest from savings accounts or bonds. When you save money in a savings account or invest in bonds, the bank or the bond issuer pays you interest. This interest is another form of unearned income. Similarly, royalties from intellectual properties such as books, music, or patents, and gains from the sale of investments or real estate are also considered unearned income.

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How Unearned Income Is Taxed

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When it comes to taxation, unearned income follows different rules than earned income. In the United States, the Internal Revenue Service taxes most unearned income at the regular income tax rate. But some types of unearned income, such as qualified dividends and long-term capital gains, are taxed at lower rates.

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Understanding how specific forms of unearned income get taxed can be complicated, and impact your overall tax liability. Therefore, getting professional advice from a tax advisor or financial advisor to ensure that you’re making the most of your investments and minimizing your tax burden is recommended.

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Types of Unearned Income

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Unearned income can be categorized into various types, each with specific examples. Some of the most popular types of unearned income are:

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Dividends: Money you receive from an investment that is paid out from corporate profits.
Rental income: If you own a property and rent it out through either long-term or short-term vacation rentals, it qualifies as unearned income.
Capital gains: When you sell an investment for more than you paid for it initially, you can have a capital gain.
Inheritance: Investments aren’t the only place you can receive unearned income. Receiving an inheritance would qualify as well.

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These are just a few forms of unearned income that help in creating a diverse portfolio. However, you should keep in mind that each form comes with its own taxation rules and potential risks.

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Benefits of Unearned Income

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Unearned income offers various potential benefits. It allows individuals to earn money without actively working, providing an additional income source and can increase their financial security.

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Moreover, unearned income could offer tax advantages, as some forms of it are taxed at lower rates than earned income.

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Long-term capital gains, for example, get taxed at a maximum rate of 20%, whereas short-term gains could bump you up to a higher income tax bracket with a maximum rate of 37%.

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Unearned income also plays an important role in wealth-building and retirement planning. It can provide a steady income stream, reduce dependency on active employment and even potentially help to enable early retirement.

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The more unearned income you have, the less you may need to rely on employment to pay your bills.

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Unearned Income vs. Earned Income

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While earned income comes from active labor, and is generally stable and predictable, unearned income is often derived from investments that could be less predictable but potentially more lucrative.

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Additionally, earned income comes with a higher tax rate and will take up more of your time actively working for it. But, by comparison, unearned income could offer you more flexibility and lower tax rates.

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You should also note that unearned income can require initial resources and may carry the potential risk of loss. It’s important to either be experienced or have someone experienced in your corner, before making large investment choices that aim to secure unearned income.

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Bottom Line

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Unearned income can offer potential financial security, additional money and even some possible tax benefits. However, you should understand the key differences between different types of unearned income and how it gets taxed.

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Tips for Tax Planning

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