tax on stocks?

Question

i started doing stocks last Nov. with $5,000 (with TDameritrade). My account showed I made $250 last year . But They sent me a 1099 form which says Unrealized profit or (loss) on open contracts-12/31/06 is ZERO. Does this mean I did not make money from stock? how to report this on fax return? All my money are still in my account in TDameritrade,
If one does cash out, how to determine if one gains or losses?

Answer 1

The key point is that the gain is unrealized: the stocks are worth more than you paid for them, but you do not realize the profit (for tax purposes) until they are sold. You need say nothing about this on your income tax return -- there is no income involved. When you finally do cash out, the profits (and losses) are reported on Schedule D. See instructions for that form for how to do so.

Answer 2

1) How stocks are taxed:

You don't have to recognize any gain/loss in your stock portfolio until the stock is sold. Since you held the stock for more than one year, it's considered a long-term capital asset and is subject to the long-term capital gains tax.

In terms of why your statement is reading like it does, I can't really say unless I examine it individually.

2) Determining Gain (Loss) Realized:

The general rule is as follows:

Amount Realized (Money Received less broker fees)
Less: Adjusted Basis
Equals: Amt of Gain (Loss) Realized

Generally your Broker will send you a form with the correct tax basis.

I hope that was helpful.