<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=333798240602453&amp;ev=PageView&amp;noscript=1 https://www.facebook.com/tr?id=333798240602453&amp;ev=PageView&amp;noscript=1 ">

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 and investment risks. At Chandler & Knowles, our staff is trained and experienced to help you work through the gray areas of taxable gains and losses. 

What are Capital Gains?capital gain

When you sell a capital asset, the profit you receive is referred to as a capital gain. The assets that qualify for capital gains include real estate properties, stocks, bonds, and mutual fund shares. Capital gains aren't one-size-fits-all, however. There are two types: short-term and long-term. The difference between the two is substantial. 

How Are Short-Term and Long-Term Gains Taxed?

There is a significant difference in the way these two classifications are taxed. The main factor that separates these two is simply time. The amount of time you've held on to a certain asset determines how its classified. Therefore, if you've held on to an asset for less than one year, it's classified as a short-term gain vs. if you've held on to an asset for more than a year, it's classified as a long-term gain. 

When it comes to long-term gains, one can be taxed at 0%, 15%, or 20% depending on their income level. 

Tax Rate




Filing Status

Taxable Income 


Up to $40,400

$40,401 to $445,850

Over $445,850

Married Filing Separately

Up to $40,400

$40,401 to $250,800

Over $250,800

Head of Household

Up to $54,100

$54,101 to $473,750

Over $473,750

Married Filing Jointly

Up to $80,800

$80,801 to $501,600

Over $501,600

Is It Possible To Minimize My Capital Gains Taxes?

There are indeed strategies you can employ to reduce the taxes you will pay on capital gains. Waiting to sell your assets is an attractive option. It should be noted that you can hold on to an asset for more than a year before you sell it.  Investing in tax-free or tax-deferred accounts, such as a 401(k) or Roth IRA can be beneficial when aiming to minimize the taxes you pay. 

capital lossWhat are Capital Losses?

On the other side, capital losses refer to the loss realized when an asset decreases in value. When the asset, such as real estate or another investment is sold for a price lower than the original purchase price, this qualifies as a capital loss. 

Do Capital Losses Affect My Tax Return As Well?

Yes, they do. But in a more favorable way. While you may have incurred a loss, when it comes to taxes, you'll receive some mercy. You can use your losses as a means to reduce your taxes. Each year, the IRS permits you to reconcile your gains and losses in order to reach your net capital gain or capital loss. 

In the event you incur a net loss, you have the ability to use up to $3,000 of it to reduce your taxable income. If there are additional losses, these can be used in subsequent years to lessen your net capital gain. 

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. 

Related Posts:

Spread the Word:

Posted in Tax Returns, Investments

Recent Posts

Subscribe to Our Blog

About Chandler & Knowles CPAs:

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.

Learn more about achieving financial success by reading our blog!

Recent Posts