Schedule D Reporting Basics – What you need to know

The Schedule D federal tax form is used for reporting capital gains income (or loss). It is relevant to stock traders and some types of businesses. Here are some basics on proper Schedule D reporting...

This two-page form is included in the "2008 Package 1040-10" mailed to many taxpayers. Instructions are on pages 23 and D1-D10. If many transactions are involved, a Schedule D-1 also becomes necessary; it may not be included in the booklet.

The separate Schedule D-1 form (available in PDF format at the IRS web site) also consists of two pages; one for reporting additional short term losses/gains and another for those that occurred over the long term (over a year or more).

Thoroughly recording the basics of each transaction (buy/sell dates, prices and descriptions) is important to accurately report capital gains. Consolidating all of this information into one place makes it easier and faster to complete the form.

Occasionally it is necessary to pay capital gains tax on real estate property sales, but there are many exceptions. Selling an individual stake in a partnership business will often require the completion of a Schedule D tax form as well.

Because of its complexity, it may be helpful to complete one copy of the Schedule D in pencil, before using a pen or typewriter to carefully fill out a second copy. Send the legible, mistake-free 2nd copy to the IRS and keep the first for backup.

These are only the basics; manually completing a Schedule D form can be very difficult. Using a tax accountant or automated computer software usually makes the reporting process much easier and helps prevent errors.

Scott Douglase is a part time author with an interest in trading and investing. He uses Gainskeeper Pro, the Tax Tool for Smart Traders at IKeepGainsMoney. Gainskeeper Pro provides individual traders and investors with a suite of automated tax-smart trading tools. These solutions calculate, track and report corporate actions, cost basis, capital gains and losses, and wash sales.