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Financial Planning Insights

How Your Investments Gains and Losses Affect Your Tax Return

By The Chandler & Knowles Team | | 0

Any investment that you make results in is either a gain or a loss. There are short and long term investments. Each of these categories are computed differently on your tax return. As this can be a complicated process, it is imperative that you have a professional accountant help you calculate the tax implications. At Chandler & Knowles, our staff is trained and experienced to help you work through the gray areas of taxable gains and losses. 

Factors To Consider

The first factor is the length of the investment. Short-term investments are taxed the same as ordinary income while long-term investments are taxed on a tier chart based on annual income and filing status. The breakdown is:

  • Short-term capital gains are assets that are held for a year or less and when sold reap a profit.
  • Long-term capital gains are assets that are held for more than a year and when sold, earn a profit. The rate of taxation starts at 0% and tops out at 20%. 
  • Capital losses are used first to offset capital gains of the same category. If the loss is over and above the gain, the remaining loss can be applied to reduce your income up to $3,000 or $1,500 if you are married filing separately. Excess losses may be carried through to future years tax returns as reductions of income.

Cumulative vs. Annualized

Cumulative and annualized are two different ways of determining the performance of your investment. Both types of calculations will help you determine if you should continue with the investment. An explanation for each is:

  • Cumulative Return indicates the amount of money an investment has earned, regardless of time.
  • Annualized Return specifies the profits based on one year. Investors should remember that investing is a fluctuating business. Only using annualized returns to advise on the wisdom of keeping an investment does not provide a true picture. Annualized returns should be compared to previous years. 
  • It is common knowledge that the economy can make or break investment success. It is vital to keep in mind the economic conditions when comparing annualized returns. Comparing apples to apples will give you the best overall view of your investments.

Formulas for both cumulative and annualized returns are complicated, particularly with varying purchase and sold amounts, stock splits, and closing pricing. Since the idea behind investment is to eventually see a profit, it is wise to seek the help of a CPA firm. This will assist with tax planning as well. At Chandler & Knowles CPA, we want to be your accountant and partner with you for a successful return on your investments. Our financial planning services will give you a leg up on your future. To get started on planning and understanding your investment portfolio, call us today for an appointment: (817) 406-3827. 

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Posted in Tax Returns, Investments

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Chandler & Knowles CPAs is dedicated to serving our clients with an integrated approach to financial success for businesses, families and individuals. Our knowledgable team is committed to providing you with the most detailed information to answer your biggest financial questions and to help make your life less taxing.

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