Taxes: File Your Stocks

Most people already know that all stock transactions must be filed in their tax returns, but if you are new to the game and aren't sure, then please read the following story.

In the year of 2006, I decided to dabble in the stock market, as I suddenly thought I could become a stock guru and make thousands of dollars without even doing research. This was not the case. For that year, I spent a total of $21,000.00 in stocks. In return, I sold those stocks for a total of $21,075.00. Yeah, what a profit, huh? I made a whopping profit of $75.00 for the year! It was pretty pathetic; however, I was actually content with that because my lack of stock experience could have easily caused me to LOSE money, so I considered myself very lucky for making that small of a profit.

When tax filing-time came, I noticed that I never had received a W-2 form from the stock trader company, so I didn't file my stocks. To be honest, even if I had received a W-2 form, I probably still would not have filed my stocks because I didn't even think it was that big of a deal considering I only made $75 in stocks for the whole year!

Well, if any of you are foolish enough to have that same thought process as I did, then I am here to say this . . . "DON'T BE A FOOL!" Approximately one year later, I received a letter from you know who. Yes, it was a letter from the beloved IRS. The letter indicated that I had received $21,075 in stocks that I did not include in my earnings for the year of 2006; therefore, they generated an invoice for me that totaled around $7,000.00, which included fees and penalties. Needless to say, I nearly soiled myself when getting this dreaded letter. Due to the fact that I didn't file my stocks (and due to the fact that the stock trader company DID file theirs), it looked as if I made a profit of $21,075.00 instead of $75.00. Big difference!

I immediately logged onto my stock account and printed out all of my statements from 2006. I promptly sent the documents to the Internal Revenue Service, which indicated how much money I had spent on stocks for that year. Several weeks later, I was greatly relieved to get a response from the IRS, indicating that they had waived the $7,000.00 invoice due to the documents I had provided them. I'm guessing they still could have easily still billed me for the penalty fees, so I was VERY thankful!

So let this be a lesson to all of you new stock traders. File your stocks! Even if your profit is only $5.00, you still need to file! Heck, file your stocks no matter what your profit is! Even if you LOSE money, you need to file them! It's actually beneficial to file your stocks if you lost money, as this can be used as a deduction for your tax return.

Like I said before, this is already common knowledge to most people, but if you are "wet behind the ears" as I once was, then you really need to take note of this blog! If you don't, then expect to get a letter from the IRS in the near future.