Capital Gains & Losses

A short sale is a sale of stock that you do not own but borrow for purposes of the sale from a broker. Brokerage firms are required by the IRS to report all stock and bond security sales, including short sales. A short sale is considered a sale according to the IRS regulations and must be reported to you and then indicated on form 1099-B.

The capital gain and loss limitations do not apply to the securities of a “dealer”, except for securities held primarily for investment. Nor do they apply to real estate sales by a dealer in realty, except for property as an investment.
A “trader” as distinguished from a “dealer” in securities is subject to the capital gain and loss limitations.
A securities “dealer” is similar to a merchant in that he purchases securities with the expectation of reselling them for a profit.
The profit is based on hopes of finding a market of buyers to purchase the securities in excess of his cost. A “trader” buys and sells securities for his own account.
A trader’s expectations of making a profit depend on the rise in value to sell at a price in excess of cost. More details can be found in IRS Publications 544 and 550 http://www.irs.ustreas.gov/prod/forms_pubs/forms.html

Securities Dealers are required to follow the IRS “market to market” rules. Traders may elect to use the “market to market” rules.
If elected, all security gains and losses are treated as ordinary income or loss, and all securities on hand at the end of the year are deemed to be sold at the end of the year at Fair Market Value.
The unrealized gain or loss on a security increases or decreases the basis of the security.
The benefit of making this election is that “traders” can take ordinary loss deductions for short term trading losses that are not subject to the $3,000 per year limit.
Also the “wash sale’ rules do not apply. Taxpayers may make the "market to market" election by attaching a statement to a timely filed return for the taxable year immediately preceding the election year. It is also necessary to complete IRS Form 3115 - Application for change in accounting method.

To figure the basis of property you get as a gift, you must know its adjusted basis to the donor just before it was given to you. You also must know it’s fair market value (FMV) at the time it was given to you and any gift tax paid on it.
Generally, the basis to the done is the same as in the hands of the donor at the date of the gift.
The basis to determine if there is a loss on the sale of a gift is the value as in the hands of the donor at the date of the gift or the fair market value Whichever is lower.
There is no gain or loss on a sale of a gift when the selling price is less than the basis for the gain and more than the basis for the loss calculation.
The basis of property received is increased by the amount of gift tax attributable to the net appreciation in value of the gift. The net appreciation is the amount by which the fair market value of the gift exceeds the donor's adjusted basis immediately before the date of the gift.
Speak to your local CPA to determine the gain or loss calculation on the sale of an asset that was received as a gift.

If your stock option is granted under an employee stock purchase plan, you generally do not include any amount in your gross income as a result of the grant or exercise of your option. You report income or loss when you sell the stock that you purchased by exercising the option.

The cost of business intangibles such as Goodwill, covenants not to compete amounts, trademarks are amortized over a 15 year period.
Most intangible assets are expected to benefit more than one year, so their cost is a capital expenditure under Internal Revenue Codesection 167 (depreciation), the primary authority for deducting intangibles

Stocks when sold result in capital losses or capital gains. Short term capital gains are taxed at the same rate as ordinary income. Long term gains, that is stocks which are held for at least one year, are taxed at a maximum federal bracket of 15%. Some lower income individuals will not pay on the long term gains. Speak to a CPA in your area to find out how this applies to you.

You can sell a stock on December 31 and still take the loss, even though the settlement date is in the following year. Of course, if December 31 is a Sunday, you better sell that stock on December 29th since the market is closed!

If you sell mutual fund shares that were acquired at different times, you must know the corresponding basis to determine your gain or loss.
One method is the specific identification method where you specifically identify the shares sold.
Another choice is the Average cost method which takes an average of all shares in the fund.
Another method is the First in First out FIFO method in which the shares sold are from the earliest to the latest owned.
If you have documentation of the history of the share ownership, you have an option to any of the methods to calculate either a lower or higher gain or loss on your sale.
Speak to your local CPA about these tax savings strategies.