The IRS is all about making sure it gets its due. The organization puts out a veritable raft of forms to make sure this happens, and woe betide the investor who gets caught without the right one.

Unfortunately, plenty of well-meaning people get stuck with penalties and interest because they used the wrong form on accident. That’s as true for Form 8949 as for any other.

Want to make sure that doesn’t happen to you, and moreover that you make the most of your investments by reducing taxable gains? Here’s your crash course in Form 8949, as well as a brief primer on using opportunity zones to defer capital gains taxes and pay less to the IRS overall.

What Is Form 8949?

Form 8949, Sales and Other Dispositions of Capital Assets, reports to the IRS capital gains and losses on capital assets and equities the investor holds. If you have made or lost income related to your assets, you – or your preparer or CPA – will need to fill out this form and submit it along with your tax return.

To fill it out, you use the 1099-B given to you by your investment company. If you sell stocks, bonds, derivatives or other securities through a broker, you can expect to receive one or more copies of Form 1099-B in January.

Short-Term and Long-Term Gains

Form 8949 is divided into two sections: short-term gains and long-term gains. Depending on how long you owned your assets, you will use either or both sections to record your profits or losses. The short-term gains section is appropriate if you owned an asset, such as stock, for a year or less before selling it.

However, if you sell your assets after a year, you are eligible for long-term gains tax. Generally, with long-term gains, you have to pay less and are taxed at special capital gains tax rates of 0%, 15%, or 20%. Note that the 20% rate affects only the highest earners.

How to Use Form 8949

In addition to simply reporting your gains and losses to the IRS, Form 8949 allows you to maximize your investment opportunities. For instance:

• If you have unrealized losses, it is beneficial to claim those losses and get your tax liability reduced. To lower your taxable income, offset long-term gains with long-term losses and short-term gains with short-term losses.
• If you have an overall capital loss for the year, you can deduct up to $3,000 of its value from your taxable income.
• If your overall capital loss is more than $3,000, you can carry the remainder forward to future tax years.

 How to Use an Opportunity Zone to Minimize Capital Gains Taxes

No pun intended, but if you had capital gains in the last year and are expecting to pay taxes on them, you’ve got a real opportunity here. Instead of reporting and paying on those gains, reinvest them in an opportunity zone. By putting the money into a Qualified Opportunity Fund, you can ultimately increase your basis and down the road pay less tax on gains realized during the sale.

Sound like a pretty good deal? That’s because it is.
Feel free to get in touch with 18 Squared Capital Partners to learn more today!

Sources
https://www.irs.gov/credits-deductions/opportunity-zones-frequently-asked-questions

https://www.irs.gov/forms-pubs/about-form-8949#:~:text=Use%20Form%208949%20to%20reconcile,will%20be%20calculated%20in%20aggregate