If so, you should be aware that your annual income tax return must indicate the gain or loss of each security sold during the year. With the advent of on-line trading, individual investors are buying and selling stocks and other securities frequently. With the large volume of trading comes the equally large responsibility of tracking the following:
Date of purchase, number of shares, name of the company, purchase price,
number of shares sold, date of sale, and gross proceeds.
If you are in the habit of buying a certain number of shares and selling a different amount than you purchased, or, if you buy securities at various intervals and values, it is important to keep track of the basis for each transaction. The IRS allows you to use the specific identification method of computing gains and losses on stock transactions, or you are able to use the average cost basis method, whereby a weighted average cost per share is computed.
In some cases, on-line trading companies may be able to provide most of the information required, however, most companies are not able to track this information accurately.
One final word about on-line trading: Studies have shown that most on-line traders are not holding their securities long enough to benefit from long-term capital gain tax rates. All securities held less than one year are subject to the higher ordinary income tax rate tables. Net losses in excess of $3,000 cannot be deducted and must be carried forward to future years.
