Tax file error found by IRS. What to do?

Question

This is because I did not report my stock trades for year 2005.
I actually had shor term loss. I was a day trader and did not feel like entering 150 transaction into tax file. Now IRS sent me a error report saying that I did not report my sale of stocks.

IRS asks me to confirm the sale of the stocks for year 2005. No purchase information has been asked by IRS. Shoudn't I enter both purchase and sale?

If I just report sale of stocks, will I be paying taxes for those sale? I did not hold any stocks for more then couple months.

Please suggest what should I do.

Answer 1

The IRS is not requesting an amended return, so don't do that right now. Get all your trades on paper, with the date of purchase, date sold, sales price, cost, gain or loss, in that order.

Then, fill out a Schedule D and put "see attached" and attach your spreadsheet. Show the total net gain or loss on the Schedule D. Mail that back to them within the time period specified.

If you actually had a short-term loss, you owe no tax and you are finished. If the loss is significant, then amend your return, using your Schedule D and Form 1040X, so you can get a refund.

Answer 2

You will need to fill out an Amended tax return (1040X). you need a copy of your original tax return to start the process. It sounds like you use a computer program (Tax Cut, TurboTax, etc) to file your return, so start there. These programs can help you through the process of an amended return. After starting with the original numbers, you have to enter each sale of stock showing your basis (the amount paid for the stock). Sometimes, the basis amount is higher than the sale amount (as in a loss), which will offset the gains on the stocks on which you made money. All of these go on the SChedule D which you will need to mail into the IRS along with the 1040X. You also need to factor in the brokers fees when you bought and sold since they can add to your losses or subtract from your gains. Your broker should have given you a detailed list of each purchase and sale. The best of the companies by far (IMHO) is ScottTrade since they show you the information just like it needs to go on a schedule D.

If you don't ant to do this yourself, pay someone a few bucks to type it in for you (ie. HR Block), which you can potentially deduct as an expense on next years return.

You're lucky the IRS didn't send you a bill! Without documenting the sales on your return, they could have assumed a 100% profit and charged you penalties and interest until you fixed it.

Good luck.

Answer 3

Yes, enter both the selling info and the purchase info and associated dates, and show your loss. Basically redo schedule D saying "see statement" then list on a separate sheet all your trades, with the info that would go on schedule D for each if there was room.

They probably said you owed them money on the gain, and if it's really a loss, you probably don't. Sales get reported to them, purchases usually don't, so they just show the sale info. Refigure your entire tax return for the year, then send them the whole thing. Be sure to respond to their letter within the specified time. You'll be OK. This really isn't a big deal.

Next time, don't let "I didn't feel like entering" stand in the way of filing an accurate return, and you'll avoid this issue.

Answer 4

Ah yes....the very very bad part that no one tells you about when you are a day trader.......tax time.

You need to report the sale and the purchase to the IRS on a Schedule D.

The broker is only require to report the sale to the IRS; not the purchase.