American Tax Service

Helping Americans File Their Taxes


How to Know if You have Capital Gains


capital gainsIf you are in the process of going through your taxes, it’s time to understand your own taxes. Even if you have a tax professional doing your taxes, it’s still great to organize your files and know what you will owe.

Let’s look at how you should divide up your income and see if you have capital gains or losses to report this year.

IRS Taxable Income Types

Currently, the IRS allows you to report your income in two taxable brackets that include capital and ordinary. This will determine how much you can claim as a capital gains tax deduction when you file your taxes. Let’s look at both and compare the differences.

  1. Ordinary Income

This is the most common of the two taxable incomes. If you have any of the following income, you can consider it as ordinary income.

  • Rental income;
  • Salary income;
  • Hourly income;
  • Self-employment income; and
  • Short-term capital gains.

We will get into the short-term capital gains in a moment. It will clarify what type of capital gains are considered short-term and long-term. However, if you fall within the other categories, you will have a higher tax percentage than a person with a long-term capital gain.

  1. Capital Gains Income

Capital gains can be explained as any personal asset that you sold at a higher rate than you purchased. Essentially, this can be categorized largely into three categories:

Taking it even further, though, the IRS breaks up capital gains into two types that include short-term and long-term. Any possession that was acquired and sold in less than 12 months of each other is considered a short-term capital gain. For this reason, the IRS views it as an ordinary income source.

If you owned the personal possession for longer than 12 months, it’s considered a long-term capital gain. So, it’s given a lower percentage rate than the ordinary income.

How You Can Determine Your Own Capital Gains and Losses

As you go through your pile, you want to make sure you’re dividing your income into three separate piles. You want one with documents containing any ordinary income sources, including short-term capital losses. Store these files away once fully compiled and work on your long-term capital gains.

Go through your long-term capital documents. If the sale price was higher than the original cost you paid, you can place that into a capital gain folder. You will be given between a 0% to 28% personal income tax on it, depending on other income factors.

If the original cost of the asset was higher than the sale price, you can place that into the capital loss file. This can be written off on your taxes, giving you a $3,000 annual write-off. If you have anything over, you can deduct the property off your taxes for the additional year.

Personal Property Owners, Don’t Worry

If file your taxes online, you will be able to easily find out what your capital gains are for the year. You’ll be asked a few simple questions and you’ll get accurate calculations based on those answers.

Their tax calculator can help you know how much money you will be getting back in your refund and their W2 early access tool can get your W2 form instantly.

How to File Taxes Online Using TurboTax

When you file with TurboTax Online Online they will search over 350 tax deductions and credits to find every tax break you qualify for so you get your maximum refund.